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spk20: Good day, ladies and gentlemen. Welcome to the Maxion Solar Technologies second quarter 2023 earnings call. Currently, all participants are in the 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.
spk11: Thank you, Operator.
spk03: Good day, everyone, and welcome to Maxion's second quarter 2023 earnings conference call. With us today are Chief Executive Officer Bill Mulligan, 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 Bill. 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 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 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's CEO, Bill Mulligan.
spk08: Thanks, Rob. Maxion delivered a solid second quarter, with revenue growth 9% sequentially and 46% year-on-year. This growth was driven largely by our increasing exposure to the U.S. utility scale sector. In spite of significant price pressure in the distributed generation market, we maintained strong ASPs that allowed us to achieve gross profit and adjusted EBITDA above our guidance midpoints. we experienced a rapidly worsening demand environment late in the quarter, which unfavorably impacted our DG shipment volume and associated revenue. Kai and I will cover that in greater detail later in my remarks. Last, but certainly not least, I'm very pleased to report that we have selected Albuquerque, New Mexico as our U.S. manufacturing site, a major step forward for this project. I'll now provide an update of our second quarter key initiatives and accomplishments in our utility scale and distributed generation businesses. Kai will then review our Q2 financial performance and expectations for Q3 in the full year, and then we'll conclude with Q&A. As mentioned above, Maxion's utility scale business has become our primary growth driver. We shipped over 1.4 gigawatts of annualized volume in the second quarter 90% of which was to customers in the United States. This included Primergy's Gemini site outside of Las Vegas, our first project in the U.S. utility scale market as an independent company and the new record holder for the largest solar power plant in the country. Completing this 968 megawatt project was a big deal for us, and we can now shift our focus to delivering further into our 3.5 gigawatt backlog with higher contracted ASPs. We also celebrated our Mexicali ModCo achieving full capacity in late June with a ribbon-cutting ceremony attended by Governor Obiella and other senior government officials from the state of Baja, California. We expect that Mexicali shipments will continue to ramp up through the second half of this year. Over the past four quarters, our technology and operations teams have delivered continued improvements, expanding factory output by over three times and increasing average panel power by around 5%. With this solid operating foundation in place and offtake visibility at contracted prices into 2027, the table is set nicely for our U.S. expansion. We disclosed today that we have selected a site near Albuquerque for our U.S. cell and module factory, and we are very grateful for the strong interest and support extended by the state and local governments. I'm speaking to you today from our new site where we will be welcoming Governor Grisham and other dignitaries tomorrow for a press event. We are pleased to have completed our exhaustive site selection process and are now moving forward quickly to submit site-specific plans to the DOE so that they can conduct site diligence and complete environmental studies, including a NEPA review. Due to strong customer demand and the anticipated availability of sufficient infrastructure at the New Mexico site, We are evaluating the option of upsizing the scale of our U.S. factory by approximately 50% to a nameplate capacity of 4.5 gigawatts. We are currently in discussions with customers and expect to be in a position to provide more definitive information in the near future regarding the final design capacity of our Albuquerque factory. Maxion is uniquely positioned to be a leader in reshoring a solar supply chain to the United States. Our product is in strong demand due to its industry-leading performance, reliable delivery record, and high ESG standards. And our stakeholders appreciate the value of our proven experience in deploying world-class solar technology worldwide, including in North America. We are highly focused on moving forward swiftly to realize this exciting project. Now let's shift gears to the DG business. As I mentioned earlier, we experienced an unexpectedly rapid change in the market demand environment late in Q2. The cause of this change was high levels of industry-wide channel inventory in both the U.S. and Europe. In the U.S., the primary drivers were the implementation of NEM 3.0 in California and the effect of higher interest rates on residential sell-through in low-cost-to-power regions such as the Southeast and Texas, where sales processes focused mostly on year-one bill savings. The NEM 2.0 sales rush in the first quarter essentially pulled in demand that would normally have been spread over several quarters, and it will now take time to replenish the top of the funnel. The consequent installer backlogs led many sales professionals in California to take time off in the second quarter, and dealers are just now testing NEM 3.0 sales processes and the end customer value propositions. We fully expect the California market will regain its fundamental strength over time, but we have tempered our volume outlook in California for the second half of 2023 to reflect the impact of this policy disruption. We saw less impact from the aforementioned demand softness in the southeastern Texas, since our exposure in those states is relatively limited. In U.S. residential, We are typically most active in locations with high utility prices, roof size constraints, and installer sales processes based on product quality and long-term savings. The majority of USDG sales were to SunPower and were in line with the terms of our supply agreement. In addition to SunPower, we now also have our own Maxion-branded dealer channel, which is showing promising growth. roughly doubling sales from distribution to installers in Q2, although behind our original volume targets due to the demand factors mentioned above. As a reminder, the purpose of this channel is to address segments of the market not currently served by SunPower. We have increased the rate of new sales hires and dealer onboarding and expect to start seeing the results of this activity later this year. While we continue to maintain a net positive relationship with SunPower, As recently disclosed, both parties believe that certain provisions under the master supply agreement have not been complied with and have notified the other of such noncompliance. SunPower has alleged noncompliance of the non-circumvention clause, to which we are responding by conducting a thorough investigation and providing the information requested by SunPower, as well as taking proactive steps to cure the alleged noncompliance. Maxion has notified Sunpower in writing that it has failed to pay approximately $29 million of past due invoices. As contemplated under the dispute provisions of the Master Supply Agreement, we have engaged with Sunpower and intend to work towards a swift resolution of such claims. We remain confident that both parties are incentivized to resolve these disputes in a manner that is beneficial for both parties and consistent with the spirit of the current contract. In Europe, overall demand is still growing, although the abundance of low-priced Chinese modules has created a significant inventory bubble in the commodity segment of the market. Because we sell a fundamentally different product and have direct access to installers, the market dynamic is a bit different from Axion. Having said that, the sales environment in Europe is also quite challenging, and the job of our sales team is more difficult today as price reductions are a top-of-mind theme in customer conversations. In Q2, we reduced IBC prices in line with our earlier plans and made ASP cuts on our performance line panels that were more than offset by COGS reductions. Even with these price decreases, we held our Q2 GG gross margins above 20% in Europe. Overall, in our DG business, our differentiated products and channels enabled Q2 ASPs that were largely within the expected range, and we hit our planned profitability levels both in absolute dollars and percentage terms. To mitigate the current demand slowdown in residential, we have been allocating increased sales focus and products to CNI applications, both in the U.S. and in Europe. Due to the longer sales cycles associated with CNI projects, we expect these sales to somewhat increase the weighting of our second half shipments towards Q4 and into 2024, as Kai will explain later. We have experienced several demand cycles in our 19 years in the solar business and have built our product portfolio and channel strategy to be as resilient as possible to the impact of such cycles. We believe that our strategy of selling differentiated products through a differentiated channel is effective, and we intend to continue to develop this strategy. Key next steps along this journey include extending our competitive advantage with Maxion 7, expanding revenue and profit contributions from our Beyond the Panel strategy, and continuing to ramp up our Maxion-branded channel in the U.S. In summary, we strongly believe that our portfolio of U.S. utility scale and global DG exposure is a sound strategic platform that provides long-term opportunity for profitable growth while diversifying market risk. With that, I'll turn it over to Kai.
spk05: Thank you, Bill. I will discuss the drivers and details of last quarter's performance and then provide guidance for the current quarter, as well as updated guidance for the full year. Total shipments for the second quarter were 807 megawatts. up 4% sequentially and 55% year-on-year. We fell short of our guidance of 860 to 900 megawatts, primarily due to the previously mentioned unexpectedly rapid changes in U.S. and European DG demand. Revenues for the second quarter were $348 million, also below our guidance. We posted healthy sequential growth in USDG and maintained our ASP levels there above 70 cents. In our new Maxion branded channel, our volume ramp was lower than expected, but higher than planned ASPs allowed us to exceed our objective in terms of profit margins. In Europe, we executed planned price decreases on both IVC and performance line skews, but held our price premium to market which enabled us to slightly expand gross margins sequentially. Non-GAAP gross profit in the second quarter was $57 million, or 16.3% of revenues, which was above our guidance midpoint. This was driven by strong efforts by the sales team to maintain ASPs, continuous cost reduction progress by the operations team, and a favorable supply chain environment. particularly with regards to polysilicon and freight costs. Non-GAAP operating expenses were $41 million in the second quarter, up from $38 million in the first quarter, and consistent with our guidance of $42 million plus or minus $2 million. Adjusted EBITDA in the second quarter was $30 million, or 8.7 percent of revenue, and in line with our guidance of $24 to $34 million. Gap net income attributable to stockholders came in at negative $1.5 million, compared to the $20 million result in the previous quarter. The difference was primarily driven by a delta of $19 million from the mark-to-market valuation adjustment of our prepaid forward. Moving on to the balance sheet, we closed the second quarter with cash, cash equivalent, restricted cash, and short-term investment of $456 million, compared to $304 million at the end of the first quarter. This increase was attributable to our capital raise in May and partially offset by second quarter capital expenditures of $24 million, as well as some debt repayments. Following our capital raise, we began planned project expenditures for our next generation IBC technology. which accounted for more than half of our capex for the quarter. Inventories expanded from $316 million to $349 million during the quarter, reflecting the slowdown of DG demand and the continued ramp of our performance line, cell, and module capacity for the U.S. utility scale market. In this current quarter, we expect continued competitive pressure and challenging demand dynamics in the residential market to hamper our growth trajectory on volume and margin. And in utility scale, we still have some lower price bookings from 2021 to fulfill. In DG, we expect competitive pricing pressure and challenging demand to persist in residential for the remainder of the year, and therefore expect to see a somewhat higher mix of C and I business. With this context in mind, I now turn to our guidance for the third quarter of 2023 and the full year. We project third quarter shipments of between 700 and 740 megawatts. The midpoint of this guidance represents a roughly 10% sequential decline due to the softer near-term residential demand also. We project third-quarter revenues of $280 to $320 million, consistent with the expected sequential volume decrease. Non-GAAP gross profit is expected to be in the range of $30 to $40 million, reflecting expected gross margins in the low double digits. This profile of lower Q3 margins sequentially is consistent with our previous expectations, but we now expect that our Q3 gross margin percentage will be also affected by the challenging market conditions. Non-GAAP operating expenses are expected to be $43 million, plus or minus $2 million, a $1 million increase from the previous quarter at the midpoint. mainly resulting from incremental investment in our usdg sales and marketing team adjusted ebitda in the third quarter is expected to be between 2 and 12 million dollars third quarter capital expenditures are projected to be in the range of 29 to 35 million dollars higher than previous quarters reflecting a full quarter of maximum 7 capex investment which we started late in the second quarter following our capital raise. For 2023, we expect total capex to be in the range of $150 to $170 million, consistent with our previous guidance, which we adjusted in May to account for maximum 7. As a reminder, this annual capex guidance excludes spending for any U.S. manufacturer. For the full year 2023, we are updating our revenue guidance to $1.25 to $1.35 billion and our adjusted EBITDA guidance to $80 to $100 million. With that, I turn the call back to Bill to summarize before we go to Q&A.
spk08: Thanks, Kai. As I have said on previous earnings calls, my goal is to help make Maxion one of the most profitable companies in the solar industry by driving aggressive manufacturing cost reduction and operational excellence, while extending our panel technology leadership and leveraging our unique global channels to market. Despite the current industry headwinds, I am still fully focused on this objective. Looking forward over the coming three years, we have a pipeline of projects that I expect will drive financial performance improvement at a structural level. In 2024, we expect to benefit from an entire year of full capacity operation in our utility scale manufacturing facilities, selling into a firm backlog at higher contracted prices. In 2025, we expect to see significant contribution from our new Maxion 7 capacity. And in 2026, we are excited about the prospect of ramping our new Albuquerque cell and module factory. Thank you for your support. Now let's go to Q&A. Operator, please proceed.
spk20: Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk11: Our first question. One moment, please.
spk10: Our first question comes from the line of Julian.
spk11: Julian, are you there?
spk13: Oh, hey. Sorry, I was on mute there. Apologies. Hey, good afternoon, team. Thanks so much for the time. I appreciate it. Look, I wanted to just ask you guys about what's going on in Europe here and how you're thinking about the IVC versus P series. Can you talk a little bit about where the pressures are and just confirm how you're adapting to the new evolving landscape, especially as you think about the international markets and maybe how you think about CNI as another evolving market to pivot into and maybe how this impacts your expansion opportunities if you think about leaning into MAC-7 and further DG-oriented production expansion?
spk12: Yeah.
spk08: Hi, Julian. Yeah, well, it has been tough in Europe. I think the conditions there deteriorated faster than most of us in the industry expected, primarily driven by these really high inventory levels in the commodity sector. We are somewhat immune to that because we sell with a different value proposition and sell direct to installers with a unique product, but we're not isolated from it, so it has created some pressure for us. We're going to respond in a couple of ways. First of all, there's still many opportunities to grow within Europe just from a market share standpoint. For example, in Europe and Germany, the biggest PV market in Europe, we sell at a very small share. So we're doubling down on our sales and marketing efforts to try to just grow the full pie. I'm glad you mentioned C&I. That really is a good opportunity for us. We have a lot of past experience in that sector, for those of us who've been following this company for a long time. It's a sector we know well, and there is a lot of opportunity there. There are specialty applications within that sector where our high-performance products play really well, for example, in in carports or in building integrated PV or even in the U.S. here, particularly in things like agricultural applications where ammonia resistance of our panels is valued. So we do have other markets we can pivot into, but I would say fundamentally we do believe Europe is still growing. It's a bit of a plateau. We still are very bullish on the DG market in the long haul, but I think this is obviously a little bit of a bump in the road here.
spk05: Julian, this is Kai. Since you also asked about the P-Series specifically in Europe, on the P-Series, as you know, we are in a position where our costs follow a commodity price index, so basically follow the prices of commodity panels that go into Europe. And also we have a offtake right from our joint venture, but not an obligation. So here also we can modulate the offtake in line with our demand forecast.
spk11: Excellent. Thank you guys very much.
spk13: And then if I can pivot super quickly over to the question of, look, you've got this Suntar arrangement obviously in 23, but also there's some question marks on 24. Can you talk a little bit about
spk08: um that conversation here and and the the re-opener and and and how one could impact the other here just elaborate a little bit more about the situation at hand and and the conversation ahead if you will and tie those two together if you can uh yeah as we we mentioned in my prepared remarks um we we have um entered into a dispute with with sun power but at a high level um we do believe that uh You know, our interests are fundamentally aligned. It's a symbiotic relationship, and they've had many years of experience with this product. They know how to do it well. We deliver a really high-quality product that is great for their channel. So we think it's a mutually beneficial relationship, and it's going to be in the interest of both parties to resolve this thing as fast as possible.
spk11: All right, but it's still expecting some amount of volumes next year, no change to those conversations.
spk05: The contract stands as it is, Julian, so we expect that it will continue and the volumes will continue.
spk09: All right, fair enough, guys. Thank you very much. I'll leave it there. I'll pass it on. Thank you.
spk11: Thank you. One moment for our next question. Our next question comes from the line of Philip Shin of Roth MKM.
spk20: Please go ahead.
spk15: Hey, guys. Thanks for taking the questions. I just wanted to follow up on the SunPower thread there. You talked about maybe having $29 million that you're collecting, and then SunPower has their allegations against you guys. Wanted to understand what the path to resolution might look like, as well as the timing. And so do you think it's a near-term type of resolution, or do you think this could sustain for some period of time? And during that time, are additional receivables being added to the balance? And so is that increasing over time? Thanks.
spk08: Yeah, hi, Phil. Bill here. Yeah, you know, this thing has just started, so I don't really want to speculate on the trajectory that it will take. I will just say, once again, you know, this is a very symbiotic, mutually beneficial relationship. There's plenty of value here to go around. I think it's something that both parties will be certainly incentivized to resolve quickly. And, Kai, maybe you could speak to this and answer that question.
spk04: Yeah.
spk05: I would say that on the topic of the cash flow, we are in contact with SunPower on that topic. We are willing to work with them. But of course, at the same time, we got to monitor our exposure and modulate accordingly.
spk11: But generally, I think there is a path that we can come to a resolution there.
spk15: Got it. Okay. Is there a way to frame what the size of the potential exposure might be? You know, 29 seems like a base level. Is there an up, like, what might a cap be on that number? Thanks.
spk05: No, not really at the moment. So the number that we have to close, obviously, is the 29 million that is overdue. We have shipped more than that. There's other invoices out there. Maybe just one number I can give, which we have publicly disclosed. Last quarter, our total sales with SunPower were $79.3 million in the second quarter.
spk11: So just to give an extra reference point.
spk15: Okay, got it. Is all of that in question in terms of collections or It's just a modest percentage.
spk05: Well, as I said, at the moment, we are stating the facts here, and we are in discussion with SunPower to resolve that situation. So I can't comment about what is in question and what is not. I think we're going to come to a resolution.
spk15: Appreciate the callers, Kai. Thank you.
spk05: And from our standpoint, just to add from our standpoint, you have seen our liquidity balance.
spk11: So I think we are in a position to help our customers there to some degree.
spk15: Thank you, Kai. Shifting over to the slowdown that you're experiencing. In your release, you talked about that the slowdown could persist at least through Q3. So I was wondering if you could share how
spk27: How long do you think this will last?
spk15: And maybe speak to it from the two different key continents, U.S. and Europe. And then could it persist through 2024? And what do you think needs to happen in order for the challenging environment to turn around? And there might be differences between the regions. Thank you.
spk08: yeah so phil um i would say um you know as you can see from our guidance um we expect q4 to be stronger than q3 um so you know there's going to be some recovery there part of that is due to seasonality um i i would say uh you know having been through many of these cycles before they they actually can correct fairly quickly uh not oftentimes as fast as they deteriorate unfortunately but I'm still quite bullish on the long-term prospects of this market. I think, you know, we will see a recovery in California. It's still a very strong market. It's a new world under NEM 3.0, but I think, you know, the value proposition still works. You will see increasing storage attach rates. It's still going to make sense economically for end customers. And so I think it's just going to take a little time for this to settle out, for the inventory bubble to be bled off. And then, you know, hopefully, you know, no one can predict the future, but hopefully I think the long-term fundamentals, I mean, I know the long-term fundamentals of DG are strong.
spk29: I know.
spk06: Phil, this is Peter. Just to make a note, just to be clear, we don't see an actual demand slowdown, market slowdown in Europe. The market there is growing nicely.
spk11: The issue there is inventory that needs to be worked off. Okay. Thanks, Peter, Bill, Kai. I'll pass it on. Thanks, Bill. Thank you. One moment for our next question. Our next question is from Brian Lee of Goldman Sachs and Company.
spk23: Hey, guys. Good afternoon. Thanks for taking the questions. I guess just following up on the line of questioning around SunPower here, I just wanted to understand a little bit the dynamic. So, you know, given the situation there, are you restricting shipments to SunPower in the near term, just given the situation of not getting paid, or are they, I guess, reneging on contractually obligated volumes in the near term until some of this gets resolved kind of well what's the sort of go forward here in 3q 4q because it sounded like in your prepared remarks 2q came in in line with expectations all obligations were kind of fulfilled but what what's you know what's this current situation translating into um in terms of how you're treating them over the next couple of quarters
spk05: Yeah. Hi, Brian. It's Kai. So we can't really go into all the details here of the conversations at all, so this is relatively fresh. So I just wanted to say that we reiterate from the previous answer that we are willing to work with them, that we, of course, have to monitor our exposure and modulate that that we have the the ability to be to be helpful here and also that we expect that the the contract is going to be honored and um i think i'll leave it there okay but i guess just you know given the guidance here coming in relatively um
spk23: soft versus expectations and maybe versus normal seasonality this part of the year. I guess the question is how much of this is, you know, broader markets, slow down inventory rebalancing versus, you know, just this customer specific issue. I'll be it. I'm sure there's some demand issues underlying some of the challenges with that customer, but what, what, what, What part of this is just the broader market read across versus what you're trying to ultimately resolve with SunPower here in the near term?
spk08: Yeah, I mean, again, we're assuming that we're going to get the SunPower relationship back on track and the contracted shipments are part of our guidance. The softness we're seeing here is largely a result of the broader market slowdown and inventory buildup in Europe. And so it's at times like these where we see a slowdown in DG that we're very happy that we are a diversified company and have exposure to the utility scale sector that's very strong and growing. As we noted in my remarks, we are it's the growth area for our company going forward. In fact, we're here in Albuquerque, New Mexico at our new site. We're super excited about getting this project up and running. It'll be a few years before it starts to contribute meaningfully. But in the meantime, we're also growing our existing Malaysia Mexicali revenue for next year. So these markets tend to be somewhat cyclical. So we believe having some diversification between the DG market, which is currently in a bit of a slump, And the U.S. utility scale sector, which is currently on fire, is a good strategy.
spk23: Understood. Maybe just two final ones, and I'll pass it on. And I hate to keep harping on this, but it seems like it's a pretty incremental development here. So I just want to make sure we're all on the same page. So what it sounds like you're saying, Bill, and correct me if I'm misinterpreting it, you are – basically assuming shipments to SunPower over the rest of the year is in line with whatever your original expectations would have been prior to this kind of challenging status with the customer having arisen here recently? That'd be the first question. And the second question is, presumably the back and forth here is around price. Is that fair? And then what's What's the potential resolution if you guys need to come to some sort of compromise? Is it all just going to come down to price? Thank you.
spk08: Yeah, I think in terms of contracted volumes, your presumption was largely correct. In terms of what the dispute is about, I really can't say much more than what was in our prepared remarks.
spk11: The mutual breaches were discussed there.
spk05: And just to say the guidance is really the contracted minimum, so no upside or anything, any additional volume, so really the minimum that is in the contract.
spk26: okay thank you one moment for our next question our next question comes from the line of andrew percoco of morgan stanley please go ahead great thanks so much for taking the question um i just wanted to come back to the the manufacturing facility in albuquerque so as you think through that incremental one and a half gigawatts that you might add, very clearly dependent on the strong demand that you're seeing. I mean, is that broad-based demand or could there be one or two large customers that are willing to sign as anchor tenants on that incremental capacity? And maybe a slightly different question on the same topic, how are you thinking about contracting out that capacity when it comes to pricing around domestic content and some of the dynamics that play with the global polysilicon prices? Thank you.
spk08: Okay, great. Well, I'll take the first end of that, and I'll let Peter talk a little bit about the pricing environment. Yeah, I think, you know, when you think about utility-scale customers, the developers we're selling to, they buy in big chunks, right? You know, our Primergy customer is just a great example, 968 megawatts, right? A full gigawatt to one customer for one project. When you think about it, it's less than 10 utility scale customers that will contract this entire volume. The upscaling is basically just really based on the strong market environment and also the fact that we found this really outstanding site here that is really shovel ready and will have all the necessary facilities that we need for such a large facility. in place in time to ramp this facility. So we're in negotiations with customers. We're optimistic about it. It'll be at least three gigawatts, but we'd like to be in the position to be able to have the land, the space, the utilities, the infrastructure to be able to upscale in this really strong market environment right now. And Peter, I don't know if you want to mention ITC here.
spk06: Sure. I would say that in terms of pricing structure for any incremental supply, but also for the baseline 3 gigawatt supply. There's no fundamental difference there in terms of our philosophy. We're looking at pricing that includes the value of local manufacturing, both at the cell and module level. And I think we've been clear that we expect that that will be a big help to our customers in terms of getting them the ITC bonus. So there's some value to that for us. And it also would involve indexing to key price inputs, cost inputs for us, so that our margin would be protected over time with a multi-year offtake tenor.
spk08: And when we execute this project, we will sign contracts. And right now, we're talking about contracting all the way through 2028 and into 2029 with these customers.
spk26: Got it. Okay, that's helpful. And then just coming back to the size of the facility, so it sounds like it's pretty easy to add the extra one and a half gigawatts based on the land that you have available to you there. How much higher can it go, you know, before you need to start doing substantial rework around the land or substation upgrades? Just wondering what's the, you know, max capacity that we could be thinking about longer term at this facility specifically. Thanks.
spk08: I'm looking out over a field that runs flat for about five miles out to the mountains with nothing there. So we have a lot of space for expansion here. And actually, in all seriousness, we have options on adjacent parcels that will give us optionality to go even bigger if we want to. And also, perhaps, I think one of the things that's likely to happen in the U.S. is more localization of components of the supply chain closer to the, you know, where the end demand is.
spk11: So I think that's a probable outcome as well over time. Okay. Thank you. I'll take the rest offline. Great. Thank you. One moment for our next question. Our next question comes from the line of Graham Price of Raymond James.
spk20: Please go ahead.
spk19: Hi, good afternoon. Thanks for taking the question. I guess just following up on the prior question, if you do end up upsizing the expansion project to 4.5 gigawatts, would the DOE loan scale as well? And if we think about something like an 80% LTV, is that kind of in the ballpark?
spk06: This is Peter. We would expect the DOE loan to scale. The constraints there are typically around some of the financial metrics, loans total value, debt coverage ratio, et cetera, which should scale with the size of the facility. Obviously, that's not a done deal yet, but that would be our expectation. With respect to the total coverage of the loan to total project costs, we haven't mentioned that, disclosed that specifically. What we've said is we would expect that to be a majority of the – to cover a majority of the expense of the project, of the project cost, and together with customer prepayments would be a large majority.
spk11: Okay. Got it.
spk19: Thanks. That's helpful. For my follow-up, just quickly on the guidance, are you able to provide the breakout between IBC versus Shingled? Maybe for 3Q in the full year, I know previously IBC was expected about 1 gigawatt, but obviously that's come down a bit.
spk05: No, Graham. Typically, we do not provide that guidance on a shipment or revenue basis, the breakdown.
spk11: The 1 gigawatt is our internal capacity for IBC. Okay, understood. Thank you very much. I'll pass it along. Appreciate your question. One moment for our next question.
spk20: Next question comes from the line of Kevin Pollard of Pickering Energy Partners. Please go ahead.
spk16: Yes, thank you. I wanted to stay with the utility scale just a little bit longer, this expansion in the U.S. I think we talked in the past, you know, kind of about targeted, you know, low to mid-teens gross margin for what you were bringing in from Mexico. As you think about the expansion in the U.S. and taking into account the totality of, you know, the 11-cent credit, you know, ITC, you know, value-add pricing, but also, you know, higher U.S. costs, What is the reasonable expectation for the margin of those facilities?
spk04: Kevin, it's Kai.
spk05: I think you already kind of put up the pieces pretty well here in terms of, you know, how to think about the margin. The incentives that we are getting, so-called FEMA incentives under the IRA are meant to kind of bridge the difference in cost between Southeast Asian made modules and modules made in the United States and also provide a little bit of an incentive to build in the United States and not just make it about the same margin and return wise. And then, of course, on top of that, there's the IDC credit that we expect to be eligible for with these products, which also is going to provide additional benefit here. So overall, we actually expect to be above these 15% long-term financial model margins for us in that part of the business. How much above the 15%? We haven't really commented on. I think it's a bit premature to comment on that right now on this call, but we do expect them to be above that marker.
spk16: Okay, great. Thank you. And then I guess on the DG side, with the shift in focus to the CNI, does that have a similar margin profile to the residential or is it a little bit – I typically think of that as being a little bit lower margin business. Can you comment on that?
spk08: Yeah, CNI typically is a little bit lower margin. But as I said earlier, we typically do sell into the value segments of sub-segments of that segment, which are things like carports and other specialty applications that command a premium. And then also, you know, from a cost structure, the format of these panels is different. They're more commercial format panels, so they're a little less costly to make. So, yes, the margin profile is a little bit lower, but they also come in bigger chunks of sales as well, so there's a little less OpEx required to move them into the channel.
spk16: Okay. And just one last quick one on the guidance. So the implied Q4 is a pretty decent step up in EBITDA. I think I heard earlier you referenced seasonality in that. But is there an improvement quarter on quarter in the DG business embedded in that improvement in Q4?
spk05: If you talk on an absolute level there, Kevin, there is more shipments into the DG and margins on a quarter-on-quarter basis, we would expect them also to be slightly healthier again compared to the third quarter. So we will have both a volume effect and a favorable margin effect that then gives us more EBITDA dollars basically for the quarter, for the reasons that we talked about, a seasonal, but also given the maximum business recovery.
spk24: That's all from me. Thank you.
spk20: Thank you. One moment for our next question. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Our next question comes from the line of Donovan Schaefer of Northland Capital Markets. Please go ahead.
spk02: Hey guys, thanks for taking the questions.
spk18: So I want to kind of flesh out the CNI side of the business a little bit, you know, just because, you know, you are kind of a sprawling organization. You've got a heck of a lot of products to offer. And, you know, historically there was, you could do some larger CNI type sales with a direct force. You know, you talked about like agrivoltaics and stuff and, But then there's also historically when part of SunPower, there was the CVAR channel, you know, commercial value-added resellers. I kind of forget if that's still something, you know, that SunPower owns in the U.S. market or if you have your own CVAR channel in the U.S. while also having like a direct CNI channel. And then what that's like in Europe. And also... Again, with all the product offerings, you know, you have cases where IBC can be fantastic if roof space is limited. But then, you know, if you're talking about like a big box retail store, you know, maybe they'll go with P-Series. And then you even have stuff that like the Maxion Air panel that, you know, was going to be pretty – was going to be lightweight so that you could go on, you know, rooftops in Europe that are 100 years old and not have to retrofit the building. So there's a whole suite of stuff you've got there and kind of different channels. So I'm just wondering if you can kind of update us where the bigger parts of that are, where the emphasis is, and kind of just help us to think about it instead of just, again, a real sprawling offering you've got. Anything there would be helpful.
spk06: Thank you. Sure. This is Peter. I'll take that one. First of all, congratulations on the new baby. Thank you. Probably not getting much sleep. So CVAR was kind of the organized channel approach that SunPower had for many years. And in fact, we have a similar channel in Europe. SunPower, I believe, got out of that business some time ago. We've continued to serve commercial customers in Europe generally through a similar structure where many of the installers do both, but some of the installers are specialized primarily in small commercial, let me say small commercial, up to, say, half a megawatt in terms of roof size. As you said, there's There is certainly a fair share of installations that can benefit from the higher efficiency, higher productivity, shade tolerance, all the things that our technology can deliver. And in addition to there's, you know, some owners that own the building want a longer term energy delivery prospect as opposed to being primarily focused on year one savings. So you see the same kind of distribution of buying behavior in commercial that you do in residential, and we cater to the premium part of that market. In the U.S., we do have, I'd say, legacy connections to some of the players, the EPC players that serve that small commercial, light commercial market. And there's also a reasonable amount of demand in slightly larger behind-the-meter applications where, because of limited land space or because of expensive BOS in the case of a car park, where, again, our product makes a lot of sense. And then, as you mentioned, Maxion Air, planning to introduce that in a little bit higher volumes next year, serves a specific segment. The CNI market's not new for us. I think what is new is more of a bias towards that market to mitigate a little bit of slack on the resi side until that inventory clears.
spk08: Right. I think what I would add, particularly in Europe, we don't talk a lot about it. But for example, in Italy, we already do a fair amount of CNI business. You know, and up until recently, we have been very supply constrained on our IBCC product, so it hasn't been a huge focus for us. But given that we have a lot of historical knowledge, and like Peter said, some legacy connections here, it's something we feel like we can move into fairly quickly. You also mentioned Maxion Air, which is still in our plans. And you're right, that could be a really excellent product for a number of different applications.
spk18: Okay, and then a second question I have is this is for you, Bill. I watched a video clip of you from Interstellar Europe. I believe I'm kind of trying to recall this off the top of my head, so I might be remembering some things incorrectly here, so feel free to correct me if I'm wrong. But in the interview, you were talking about plans to move to TopCon with the P-Series shingling. I'm just curious if you have any kind of a timeline around that, if that's premature, and then if there would be meaningful investments that would need to be done, or if this is basically just using really the same type of slicing and dicing, shingling equipment that you have, and there would just be sort of additional validation or certification work. around shifting or enabling to do TopCon. And lastly, if it's just about kind of keeping up with general solar trends or if there would be any sort of special incremental technology benefits or performance benefits. I know you get an uplift in durability, efficiencies and stuff with the current monoperk cells. Is any of that kind of magnified or multiplied if you started doing this with TopCon?
spk08: Yeah, okay, great. Good question. Yes, our new U.S. factory will use Topcon technology. It's maturing rapidly right now in the industry, so there's not very much technology risk with it at this stage. That being said, you know, it does get harder and harder to make high-efficiency cells. The further up you move in the efficiency charts, our intel is that There are a lot of companies in the TopCon space that are currently still struggling with yields and costs. Our long, long experience in high-efficiency technology actually puts us in a preferred position to address some of these issues because when we start to converge on very high-efficiency solar cell designs, a lot of the issues converge as well. And so we have technology solutions and expertise that I think can make us a really world-class Topcon manufacturer. And so that's part of our strategy. Everything going forward will likely be Topcon technology. Whether or not we retrofit some of our old per capacity TBD, but it could be because that product's still doing very well, being able to import that into the U.S. and being able to contract it out for a long time. Don, I just – Peter, just to clarify.
spk06: And all of our technology going forward for our performance line will be TopCon.
spk08: That's right. Sorry, for the performance line. Of course, we're going to continue to grow and expand our IBC portfolio as well.
spk18: Okay. And just to be clear on a couple of things. So, Bill, when you said yield, you know, other companies are struggling on yield. You're talking about the manufacturing yield, not like an energy yield or something for
spk08: Perhaps a little bit of both.
spk18: Okay. And then you're saying, so there would be a sort of retrofit of some kind that would be required for, say, like the Mexicali facility. Not that you would necessarily... Yeah, yeah.
spk08: We built those facilities just a couple of years ago. We had seen this trend coming, so we We did plan additional space in the facilities to upgrade if necessary. It's just a pure question of economics. Does that additional investment pay back? And so we'll do that math, and when the time comes, we'll consider that. But for right now, we have a lot of work on our hands to build a three gigawatt factory here in New Mexico, so we're going to focus on that.
spk17: Yeah, no kidding. Okay, well, great. Thanks, guys. I'll take the rest of my questions offline.
spk20: All right, thank you so much for your questions. One moment while we queue our final question. And for this question, we'll welcome back Philip Shin of Roth MKM. Please go ahead.
spk15: Hey, thanks for taking the follow-ups here. Just had a few on the DOE loan guarantee and the new facility. was wondering if you could give us a sense of the timing of when that could be finalized. Are we getting closer? Could it be in the next month or so? Or do you think we have to wait until year-end or perhaps into 2024? And then also, can you remind us or help us understand what the wafer sources would be? And so have you, with this announcement, locked in a secure supply of wafers? If you mentioned that earlier, sorry if I missed it. And then finally, why announce this facility today when the DOE loan guarantee has not been provided? So thanks for taking the follow-ups, and I appreciate it.
spk08: All right. Thanks, Phil. Well, you know, the site selection process, unfortunately, has taken a little bit longer than we'd like. It really has been the bottleneck for completion of DOEs. due diligence. There's a certain amount of site-specific diligence they have to do, including things like environmental reviews. Also, we really can't finalize the financial model for the project until we knew the site-specific details. So that's done now, and so we expect that we're going to be able to move this project forward at a rapid clip from this point. I'm sort of hesitant to forecast timing. you know, perhaps Peter can give some color on that, and also Peter's going to look closer to the wafer supply situation.
spk06: Yeah, on the timing, Phil, as Bill said, I think this is the last major obstacle out of the way here in terms of completing the DOE diligence. We'll see what that turns into in terms of timing of a conditional approval. On wafer supply, you know, I think our objective in the midterm on this project is to be able to source wafers in the U.S. There's a variety of people looking at that. We're in conversations with those. But at the time that we would sign the DOE loan and give the formal go-ahead on the project, we would have all of our wafer supply locked up. That's normally the way we handle, as well as the customer offtake commitments. And in terms of the why now, I would say that we have a site event planned for tomorrow, and we thought that investors would want to know about it.
spk08: Yeah, and I mean, it does allow us to get moving, right? We will do a certain amount of engineering and maybe some long lead time risk purchases to keep the timeline moving forward. So we really couldn't unlock all of that until we pick the site. Okay.
spk15: Great. Thanks for the additional color, and I'll pass back.
spk20: Appreciate your question. As there are no further questions, we will now conclude the call. Thank you all again, and you may now disconnect. Thank you. Music playing Thank you. Thank you. you Good day, ladies and gentlemen. Welcome to the Maxion Solar Technologies second quarter 2023 earnings call. Currently, all participants are in the 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.
spk11: Sir, you may begin. Thank you, Operator.
spk03: Good day, everyone, and welcome to Maxion's second quarter 2023 earnings conference call. With us today are Chief Executive Officer Bill Mulligan, 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 Bill. 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 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 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's CEO, Bill Mulligan.
spk08: Thanks, Rob. Maxion delivered a solid second quarter with revenue growth 9% sequentially and 46% year-on-year. This growth was driven largely by our increasing exposure to the U.S. utility scale sector. In spite of significant price pressure in the distributed generation market, we maintained strong ASTs that allowed us to achieve gross profit and adjusted EBITDA above our guidance midpoints. we experienced a rapidly worsening demand environment late in the quarter, which unfavorably impacted our DG shipment volume and associated revenue. Kai and I will cover that in greater detail later in my remarks. Last, but certainly not least, I'm very pleased to report that we have selected Albuquerque, New Mexico as our U.S. manufacturing site, a major step forward for this project. I'll now provide an update of our second quarter key initiatives and accomplishments in our utility scale and distributed generation businesses. Kai will then review our Q2 financial performance and expectations for Q3 in the full year, and then we'll conclude with Q&A. As mentioned above, Maxion's utility scale business has become our primary growth driver. We shipped over 1.4 gigawatts of annualized volume in the second quarter, 90% of which was to customers in the United States. This included Primergy's Gemini site outside of Las Vegas, our first project in the U.S. utility scale market as an independent company and the new record holder for the largest solar power plant in the country. Completing this 968-megawatt project was a big deal for us, and we can now shift our focus to delivering further into our 3.5-gigawatt backlog with higher contracted ASPs. We also celebrated our Mexicali ModCo achieving full capacity in late June with a ribbon-cutting ceremony attended by Governor Obioja and other senior government officials from the state of Baja, California. We expect that Mexicali shipments will continue to ramp up through the second half of this year. Over the past four quarters, our technology and operations teams have delivered continued improvements, expanding factory output by over three times and increasing average panel power by around 5%. With this solid operating foundation in place and offtake visibility at contracted prices into 2027, the table is set nicely for our U.S. expansion. We disclosed today that we have selected a site near Albuquerque for our U.S. cell and module factory, and we are very grateful for the strong interest and support extended by the state and local governments. I'm speaking to you today from our new site where we will be welcoming Governor Grisham and other dignitaries tomorrow for a press event. We are pleased to have completed our exhaustive site selection process and are now moving forward quickly to submit site-specific plans to the DOE so that they can conduct site diligence and complete environmental studies, including a NEPA review. Due to strong customer demand and the anticipated availability of sufficient infrastructure at the New Mexico site, we are evaluating the option of upsizing the scale of our U.S. factory by approximately 50% to a nameplate capacity of 4.5 gigawatts. We are currently in discussions with customers and expect to be in a position to provide more definitive information in the near future regarding the final design capacity of our Albuquerque factory. Maxion is uniquely positioned to be a leader in reshoring a solar supply chain to the United States. Our product is in strong demand due to its industry-leading performance, reliable delivery record, and high ESG standards. And our stakeholders appreciate the value of our proven experience in deploying world-class solar technology worldwide, including in North America. We are highly focused on moving forward swiftly to realize this exciting project. Now let's shift gears to the DG business. As I mentioned earlier, we experienced an unexpectedly rapid change in the market demand environment late in Q2. The cause of this change was high levels of industry-wide channel inventory in both the U.S. and Europe. In the U.S., the primary drivers were the implementation of NEM 3.0 in California and the effect of higher interest rates on residential sell-through in low-cost-to-power regions such as the Southeast and Texas, where sales processes focused mostly on year-one bill savings. The NEM 2.0 sales rush in the first quarter essentially pulled in demand that would normally have been spread over several quarters, and it will now take time to replenish the top of the funnel. The consequent installer backlogs led many sales professionals in California to take time off in the second quarter, and dealers are just now testing NEM 3.0 sales processes and the end customer value propositions. We fully expect the California market will regain its fundamental strength over time, but we have tempered our volume outlook in California for the second half of 2023 to reflect the impact of this policy disruption. We saw less impact from the aforementioned demand softness in the southeast in Texas, since our exposure in those states is relatively limited. At U.S. Residential, we are typically most active in locations with high utility prices roof size constraints, and installer sales processes based on product quality and long-term savings. The majority of USDG sales were to SunPower and were in line with the terms of our supply agreement. In addition to SunPower, we now also have our own Maxion-branded dealer channel, which is showing promising growth, roughly doubling sales from distribution to installers in Q2, although behind our original volume targets, due to the demand factors mentioned above. As a reminder, the purpose of this channel is to address segments of the market not currently served by SunPower. We have increased the rate of new sales hires and dealer onboarding and expect to start seeing the results of this activity later this year. While we continue to maintain a net positive relationship with SunPower, as recently disclosed, both parties believe that certain provisions under the Master Supply Agreement have not been complied with and have notified the other of such noncompliance. SunPower has alleged noncompliance of the noncircumvention clause, to which we are responding by conducting a thorough investigation and providing the information requested by SunPower, as well as taking proactive steps to cure the alleged noncompliance. Maxion has notified SunPower in writing that it has failed to pay approximately $29 million of past due invoices. As contemplated under the dispute provisions of the Master Supply Agreement, we have engaged with Sunpower and intend to work towards a swift resolution of such claims. We remain confident that both parties are incentivized to resolve these disputes in a manner that is beneficial for both parties and consistent with the spirit of the current contract. In Europe, overall demand is still growing. although the abundance of low-price Chinese modules has created a significant inventory bubble in the commodity segment of the market. Because we sell a fundamentally different product and have direct access to installers, the market dynamic is a bit different from Axion. Having said that, the sales environment in Europe is also quite challenging, and the job of our sales team is more difficult today as price reductions are a top-of-mind theme in customer conversations. In Q2, we reduced IBC prices in line with our earlier plans and made ASP cuts on our performance line panels that were more than offset by COGS reduction. Even with these price decreases, we held our Q2 GG gross margins above 20% in Europe. Overall, in our DG business, our differentiated products and channels enabled Q2 ASPs that were largely within the expected range, and we hit our planned profitability levels, both in absolute dollars and percentage terms. To mitigate the current demand slowdown in residential, we have been allocating increased sales focus and products to CNI applications, both in the U.S. and in Europe. Due to the longer sales cycles associated with CNI projects, we expect these sales to somewhat increase the weighting of our second-half shipments towards Q4. and into 2024, as Kai will explain later. We have experienced several demand cycles in our 19 years in the solar business and have built our product portfolio and channel strategy to be as resilient as possible to the impact of such cycles. We believe that our strategy of selling differentiated products through a differentiated channel is effective, and we intend to continue to develop this strategy. Key next steps along this journey include extending our competitive advantage with Maxion 7, expanding revenue and profit contributions from our Beyond the Panel strategy, and continuing to ramp up our Maxion-branded channel in the U.S. In summary, we strongly believe that our portfolio of U.S. utility scale and global DG exposure is a sound strategic platform that provides long-term opportunity for profitable growth while diversifying market risk. With that, I'll turn it over to Kai.
spk05: Thank you, Bill. I will discuss the drivers and details of last quarter's performance and then provide guidance for the current quarter, as well as updated guidance for the full year. Total shipments for the second quarter were 807 megawatts, up 4% sequentially and 55% year-on-year. We fell short of our guidance of 860 to 900 megawatts. primarily due to the previously mentioned unexpectedly rapid changes in U.S. and European DG demands. Revenues for the second quarter were $348 million, also below our guidance. We posted healthy sequential growth in USDG and maintained our ASP levels there above 70 cents. In our new Maxion branded channel, our volume ramp was lower than expected, but higher than planned ASPs allowed us to exceed our objective in terms of profit margins. In Europe, we executed planned price decreases on both IVC and performance line skews, but held our price premium to market, which enabled us to slightly expand gross margins sequentially. Non-GAAP gross profit in the second quarter was $57 million, or 16.3% of revenues, which was above our guidance midpoint. This was driven by strong efforts by the sales team to maintain ASPs, continuous cost reduction progress by the operations team, and a favorable supply chain environment, particularly with regards to polysilicon and freight costs. Non-GAAP operating expenses were $41 million in the second quarter, up from $38 million in the first quarter, and consistent with our guidance of $42 million plus or minus $2 million. Adjusted EBITDA in the second quarter was $30 million, or 8.7% of revenue, and in line with our guidance of $24 to $34 million. Gap net income attributable to stockholders came in at negative $1.5 million, compared to the $20 million result in the previous quarter. The difference was primarily driven by a delta of $19 million from the mark-to-market valuation adjustment of our prepaid forward. Moving on to the balance sheet, we closed the second quarter with cash, cash equivalent, restricted cash, and short-term investment of $456 million, compared to $304 million at the end of the first quarter. This increase was attributable to our capital raise in May and partially offset by second quarter capital expenditures of $24 million, as well as some debt repayments. Following our capital raise, we began planned project expenditures for our next generation IBC technology. which accounted for more than half of our capex for the quarter. Inventories expanded from $316 million to $349 million during the quarter, reflecting the slowdown of DG demand and the continued ramp of our performance line, cell, and module capacity for the U.S. utility scale market. In this current quarter, we expect continued competitive pressure and challenging demand dynamics in the residential market to hamper our growth trajectory on volume and margin. And in utility scale, we still have some lower price bookings from 2021 to fulfill. In DG, we expect competitive pricing pressure and challenging demand to persist in residential for the remainder of the year, and therefore expect to see a somewhat higher mix of C and I business. With this context in mind, I now turn to our guidance for the third quarter of 2023 and the full year. We project third quarter shipment of between 700 and 740 megawatts. The midpoint of this guidance represents a roughly 10% sequential decline due to the softer near-term residential demand also. We project third-quarter revenues of $280 to $320 million, consistent with the expected sequential volume decrease. Non-GAAP cross-profit is expected to be in the range of $30 to $40 million, reflecting expected gross margins in the low double digits. This profile of lower Q3 margins sequentially is consistent with our previous expectations, but we now expect that our Q3 gross margin percentage will be also affected by the challenging market conditions. Non-GAAP operating expenses are expected to be $43 million, plus or minus $2 million, a $1 million increase from the previous quarter at the midpoint. mainly resulting from incremental investment in our USDG sales and marketing team. Adjusted EBITDA in the third quarter is expected to be between $2 and $12 million. Third quarter capital expenditures are projected to be in the range of $29 to $35 million, higher than previous quarters, reflecting a full quarter of maximum seven capex investment, which we started late in the second quarter following our capital raise. For 2023, we expect total capex to be in the range of $150 to $170 million, consistent with our previous guidance, which we adjusted in May to account for maximum 7. As a reminder, this annual capex guidance excludes spending for any U.S. manufacturer. For the full year 2023, we are updating our revenue guidance to $1.25 to $1.35 billion and our adjusted EBITDA guidance to $80 to $100 million. With that, I turn the call back to Bill to summarize before we go to Q&A.
spk08: Thanks, Kai. As I have said on previous earnings calls, my goal is to help make Maxion one of the most profitable companies in the solar industry by driving aggressive manufacturing cost reduction and operational excellence, while extending our panel technology leadership and leveraging our unique global channels to market. Despite the current industry headwinds, I am still fully focused on this objective. Looking forward over the coming three years, we have a pipeline of projects that I expect will drive financial performance improvement at a structural level. In 2024, we expect to benefit from an entire year of full capacity operation in our utility scale manufacturing facilities, selling into a firm backlog at higher contracted prices. In 2025, we expect to see significant contribution from our new Maxion 7 capacity. And in 2026, we are excited about the prospect of ramping our new Albuquerque cell and module factory. Thank you for your support. Now let's go to Q&A. Operator, please proceed.
spk20: Thank you. We will now conduct the question and answer session. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster.
spk11: Our first question. One moment, please.
spk10: Our first question comes from the line of .
spk11: Julian, you there?
spk13: Oh, hey. Sorry. I was on mute there. Apologies. Hey, good afternoon, team. Thanks so much for the time. I appreciate it. Look, I wanted to just ask you guys about what's going on in Europe here and how you're thinking about the IVC versus P series. Can you talk a little bit about where the pressures are and just confirm how you're adapting to the new evolving landscape, especially as you think about the international markets and maybe how you think about CNI as another evolving market to pivot into and maybe how this impacts your expansion opportunities if you think about leaning into MAC-7 and further DG-oriented production expansion?
spk12: Yeah.
spk08: Hi, Julian. Yeah, well, it has been tough in Europe. I think the conditions there deteriorated faster than most of us in the industry expected, primarily driven by these really high inventory levels in the commodity sector. We are somewhat immune to that because we sell with a different value proposition and sell direct to installers with a unique product, but we're not isolated from it. So it has created some pressure for us. We're going to respond in a couple of ways. First of all, there's still many opportunities to grow within Europe just from a market share standpoint. For example, in Europe and Germany, the biggest PV market in Europe, we still have a very small share. So we're doubling down on our sales and marketing efforts to try to just grow the full pie. I'm glad you mentioned C&I. That really is a good opportunity for us. We have a lot of past experience in that sector, for those of us who've been following this company for a long time. It's a sector we know well, and there is a lot of opportunity there. There are specialty applications within that sector where our high-performance products play really well, for example, in carports or in building integrated pv or even in the u.s here particularly in things like agricultural applications where ammonia resistance of our panels is valued so we do have other uh other markets we can pivot into but i would say fundamentally we do believe you know europe is still growing um it's a bit of a plateau um we we still are very bullish on the dg market in the long haul, but I think this is obviously a little bit of a bump in the road here.
spk05: Julian, this is Kai. Since you also asked about the P-Series specifically in Europe, so on the P-Series, as you know, we are in a position where our costs follow a commodity price index, so basically follow the prices of commodity panels that go into Europe And also we have a offtake right from our joint venture, but not an obligation.
spk11: So here also we can modulate the offtake in line with our demand forecast. Excellent. Thank you guys very much.
spk13: And then if I can pivot super quickly over to the question of, look, you've got this Suntar arrangement obviously in 23, but also there's some question marks on 24. Can you talk a little bit about
spk08: um that conversation here and and the the re-opener and and and how one could impact the other here just elaborate a little bit more about the situation at hand and and the conversation ahead if you will and tie those two together if you can uh yeah as we we mentioned in my prepared remarks um we we have um entered into a dispute with with sun power but at a high level um we do believe that uh You know, our interests are fundamentally aligned. It's a symbiotic relationship, and they've had many years of experience with this product. They know how to do it well. We deliver a really high-quality product that is great for their channel. So we think it's a mutually beneficial relationship, and it's going to be in the interest of both parties to resolve this thing as fast as possible.
spk11: All right, but it's still expecting some amount of volumes next year, no change to those conversations.
spk05: The contract stands as it is, Julian, so we expect that it will continue and the volumes will continue.
spk09: All right, fair enough, guys. Thank you very much. I'll leave it there. Thank you.
spk11: Thank you. One moment for our next question. Our next question comes from the line of Philip Shin of Roth MKM.
spk20: Please go ahead.
spk15: Hey guys, thanks for taking the questions. I just wanted to follow up on the SunPower thread there. You talked about maybe having 29 million that you're collecting and then SunPower has their allegations against you guys. One, to understand what the path to resolution might look like, as well as the timing. And so do you think it's a near-term type of resolution, or do you think this could sustain for some period of time? And during that time, are additional receivables being added to the balance? And so is that increasing over time? Thanks.
spk31: Yeah.
spk08: Hi, Phil. Bill here. Yeah, this thing has just started, so I don't really want to speculate on the trajectory that it will take. I will just say, once again, this is a very symbiotic, mutually beneficial relationship. There's plenty of value here to go around. I think it's something that both parties will be certainly incentivized to resolve quickly. And Kai, maybe you could speak to this and answer that question.
spk04: Yeah.
spk05: I would say that on the topic of the cash flow, we are in contact with SunPower on that topic. We are willing to work with them. But of course, at the same time, we got to monitor our exposure and modulate accordingly.
spk11: But generally, I think there is a path that we can come to a resolution there.
spk15: Got it. Okay. Is there a way to frame what the size of the potential exposure might be? You know, 29 seems like a base level. Is there an up, like, what might a cap be on that number? Thanks.
spk05: No, not really at the moment. So the number that we have to close, obviously, is the 29 million that is overdue. We have shipped more than that. There's other invoices out there. Maybe just one number I can give, which we have publicly disclosed. Last quarter, our total sales with SunPower were $79.3 million in the second quarter.
spk11: So just to give an extra reference point.
spk15: Okay, got it. Is all of that in question in terms of collections or It's just a modest percentage.
spk05: Well, as I said, at the moment, we are stating the facts here, and we are in discussion with SunPower to resolve that situation. So I can't comment about what is in question and what is not. I think we're going to come to a resolution.
spk15: Appreciate the callers, Kai. Thank you.
spk05: And from our standpoint, just to add from our standpoint, you have seen our liquidity balance. So I think we are in a position to help our customer there to some degree.
spk15: Thank you, Kai. Shifting over to the slowdown that you're experiencing. In your release, you talked about that the slowdown could persist at least through Q3. So I was wondering if you could share how long do you think the slowdown lasts? lasts and maybe speak to it from the two different key continents, U.S. and Europe. And then could it persist through 24, and what do you think needs to happen in order for the challenging environment to turn around? And there might be differences between the regions. Thank you.
spk08: Yeah. I would say, as you can see from our guidance, we expect Q4 to be stronger than Q3, so there's going to be some recovery there. Part of that is due to seasonality. I would say, having been through many of these cycles before, they actually can correct fairly quickly, not oftentimes as fast as they deteriorate, unfortunately. I'm still quite bullish on the long-term prospects of this market. I think, you know, we will see a recovery in California. It's still a very strong market. It's a new world under NEM 3.0, but I think, you know, the value proposition still works. You will see increasing storage attach rates. It's still going to make sense economically for end customers. And so I think it's just going to take a little time for this to settle out for the inventory bubble to be bled off. And then, you know, hopefully, you know, no one can predict the future, but hopefully I think the long-term fundamentals, I mean, I know the long-term fundamentals of DG are strong.
spk06: Phil, this is Peter. Just to make a note, just to be clear, we don't see an actual demand slowdown, market slowdown in Europe. The market there is growing nicely.
spk11: The issue there is inventory that needs to be worked off. Okay. Thanks, Peter, Bill, Kai. I'll pass it on. Thanks, Bill. Thank you. One moment for our next question. Our next question is from Brian Lee of Goldman Sachs & Company.
spk23: Hey, guys. Good afternoon. Thanks for taking the questions. I guess just following up on... the line of questioning around SunPower here. I just wanted to understand a little bit the dynamic. So, you know, given the situation there, are you restricting shipments to SunPower in the near term, just given the situation of not getting paid? Or are they, I guess, reneging on contractually obligated volumes in the near term until some of this gets resolved? Kind of, well, what's the sort of go forward here in 3Q, 4Q, because it sounded like in your prepared remarks, 2Q came in in line with expectations, all obligations were kind of fulfilled. But what's this current situation translating into in terms of how you're treating them over the next couple of quarters?
spk05: Yeah. Hi, Brian. It's Kai. We can't really go into all the details here of the conversations at all. So this is relatively fresh. So I just wanted to say that we reiterate from the previous answer that we are willing to work with them, that we, of course, have to monitor our exposure and modulate that. that we have the ability to be helpful here and also that we expect that the contract is going to be honored.
spk11: And I think I'll leave it there. Okay.
spk23: But I guess just, you know, given the guidance here coming in relatively soft versus expectations and maybe versus normal seasonality this part of the year, I guess the question is how much of this is, you know, broader markets, slowdown, inventory, rebalancing versus, you know, just this customer-specific issue, albeit I'm sure there's some demand issues underlying some of the challenges with that customer. But what part of this is just the broader market read across versus what you're trying to ultimately resolve with SunPower here in the near term?
spk08: Yeah. I mean, again, we're assuming that we're going to get the SunPower relationship back on track, and the contracted shipments are part of our guidance. The softness we're seeing here is largely a result of the broader market slowdown and inventory buildup. in Europe. And so, you know, it's at times like these where we see a slowdown in DG that we're very happy that we are a diversified company and have exposure to the utility scale sector that's very strong and growing. As we noted in my remarks, we are, it's the growth area for our company going forward. In fact, we're here in Albuquerque, New Mexico at our new site We're super excited about getting this project up and running. It'll be a few years before it starts to contribute meaningfully. But in the meantime, we're also growing our existing Malaysia Mexicali revenue for next year. So these markets tend to be somewhat cyclical. So we believe having some diversification between the DG market, which is currently in a bit of a slump, and the US utility scale sector, which is currently on fire. is a good strategy.
spk23: Understood. Maybe just two final ones and I'll pass it on. And I hate to keep harping on this, but it seems like it's a pretty incremental development here. So just want to make sure we're all on the same page. So what it sounds like you're saying, Bill, and correct me if I'm misinterpreting it, you are basically assuming that shipments to SunPower over the rest of the year is in line with whatever your original expectations would have been prior to this kind of challenging status with the customer having arisen here recently? That would be the first question. And the second question is, you know, presumably the back and forth here is around price. Is that fair? And then what's the potential resolution if you guys need to come to some sort of compromise? Is it all just going to come down to price? Thank you.
spk08: Yeah, I think in terms of contracted volumes, your presumption was largely correct. In terms of what the dispute is about, I really can't say much more than what was in our prepared remarks that the mutual breaches were discussed there.
spk05: And just to say the guidance is really the contracted minimum, so no upsides or any additional volume, so really the minimum that is in the contract.
spk26: okay thank you one moment for our next question our next question comes from the line of andrew percoco of morgan stanley please go ahead great thanks so much for taking the question um i just wanted to come back to the the manufacturing facility in albuquerque so as you think through that incremental one and a half gigawatts that you might add, very clearly dependent on the strong demand that you're seeing. I mean, is that broad-based demand, or could there be one or two large customers that are willing to sign as anchor tenants on that incremental capacity? And maybe a slightly different question on the same topic, how are you thinking about contracting out that capacity when it comes to pricing around domestic content and some of the dynamics at play with the global polysilicon prices? Thank you.
spk08: Okay, great. Well, I'll take the first end of that, and I'll let Peter talk a little bit about the pricing environment. Yeah, I think, you know, when you think about utility-scale customers, the developers we're selling to, they buy in big chunks, right? You know, our Primergy customer is just a great example, 968 megawatts, right? A full gigawatt to one customer for one project. When you think about it, it's... you know, it's less than 10 utility scale customers that will contract this entire volume. You know, the upscaling is basically just really based on the strong market environment, you know, and also the fact that we found this really outstanding site here that is really shovel ready and will have all the necessary facilities that we need for such a large facility in place in time to ramp this facility. So we're in negotiations with customers. We're optimistic about it. It'll be at least three gigawatts, but we'd like to be in the position to be able to have the land, the space, the utilities, the infrastructure to be able to upscale in this really strong market environment right now. And Peter, I don't know if you want to mention ITC here.
spk06: Sure. I would say that in terms of pricing structure for any incremental supply, but also for the baseline three gigawatt supply, There's no fundamental difference there in terms of our philosophy. We're looking at pricing that includes the value of local manufacturing, both at the cell and module level. And I think we've been clear that we expect that that will be a big help to our customers in terms of getting them the ITC bonus. So there's some value of that for us. And it also would involve indexing to key price inputs cost inputs for us so that our margin would be protected over time with a multi-year off-take tenor.
spk08: And when we execute this project, we will sign contracts, and right now we're talking about contracting all the way through 2028 and into 2029 with these customers.
spk26: Got it. Okay, that's helpful. And then just coming back to the size of the facility, so it sounds like it's pretty easy to add the extra one and a half gigawatts based on the land that you have available to you there how much higher can it go you know before you need to start doing substantial rework around the land or sufficient upgrades just wondering what the you know max capacity that we could be thinking about longer term at this facility specifically thanks i'm looking out over a field that runs flat or about five miles out to the mountains with nothing there so we have uh we have a lot of space for expansion here
spk08: And actually, in all seriousness, we have options on adjacent parcels that will give us optionality to go even bigger if we want to. Okay. And also, perhaps, I think one of the things that's likely to happen in the U.S. is more localization of components of the supply chain closer to where the end demand is.
spk11: So I think that's a probable outcome as well over time. Okay. Thank you. I'll take the rest offline. Great. Thank you. One moment for our next question.
spk20: Our next question comes from the line of Graham Price of Raymond James. Please go ahead.
spk19: Hi. Good afternoon. Thanks for taking the question. I guess just following up on the prior question, if you do end up upsizing the expansion project to 4.5 gigawatts, Would the DOE loan scale as well? And if we think about something like an 80% LTV, is that kind of in the ballpark?
spk06: This is Peter. We would expect the DOE loan to scale. The constraints there are typically around some of the financial metrics, loans total value, debt coverage ratio, et cetera, which should scale with the size of the facility. Obviously, that's not a done deal yet, but that would be our expectation. With respect to the total coverage of the loan to total project cost, we haven't mentioned that, disclosed that specifically. What we've said is we would expect that to be a majority of the – to cover a majority of the expense of the project, of the project cost, and together with customer prepayments would be a large majority.
spk10: Okay, got it.
spk11: Thanks.
spk19: That's helpful. For my follow-up, just quickly on the guidance, are you able to provide the breakout between IBC versus shingled, maybe for 3Q in the full year? I know previously IBC was expected about one gigawatt, but obviously that's come down a bit.
spk05: No, Graham. Typically, we do not provide that guidance on a shipment or revenue basis that breaks down.
spk11: The one gigawatt is our internal capacity for IDP. Okay. Understood. Thank you very much. I'll pass it along. Appreciate your question. One moment for our next question.
spk20: Next question comes from the line of Kevin Pollard of Pickering Energy Partners. Please go ahead.
spk16: Yes, thank you. I wanted to stay with the utility scale just a little bit longer, this expansion in the U.S. I think we talked in the past, you know, kind of about targeted low to mid-teens gross margin for what you were bringing in from Mexico. As you think about the expansion in the U.S. and taking into account the totality of the 11-cent credit, ITC value-add pricing, but also higher U.S. costs, what is the reasonable expectation for the margin of those facilities?
spk04: Kevin, it's Kai. I think you'll
spk05: already kind of put up the pieces pretty well here in terms of how to think about the margin. The incentives that we are getting, so-called FEMA incentives under the IRA, are meant to kind of bridge the difference in cost between Southeast Asian-made modules and modules made in the United States, and also provide a little bit of an incentive built in the United States and not just make it about the same margin and return-wise. And then, of course, on top of that, there's the IDC credit that we expect to be eligible for with these products, which also is going to provide an additional benefit here. So overall, we actually expect to be above these 15% long-term financial model margins for us in that part of the business. How much above the 15%? We haven't really commented on. I think it's a pretty, it's a bit premature to comment on that right now on this call, but we do expect them to be above that marker.
spk16: Okay, great. Thank you. And then I guess on the DG side, with the shift in focus to the CNI, Does that have a similar margin profile to the residential or is it a little bit, I typically think of that as being a little bit lower margin business. Can you comment on that?
spk08: Yeah, CNI typically is a little bit lower margin. But as I said earlier, we typically do sell into the value segments of subsegments of that segment, which are things like carports and other specialty applications that command a premium. And then also, you know, from a cost structure, the format of these panels is different. They're more commercial format panels, so they're a little less costly to make. So, yes, the margin profile is a little bit lower, but they also come in bigger chunks of sales as well, so there's a little less op-ex required to move them into the channel.
spk16: Okay. And just one last quick one on the guidance. So, the implied Q4 is a pretty decent step up in EBITDA. I think I heard earlier you referenced seasonality in that. But is there an improvement quarter on quarter in the DG business embedded in that improvement in Q4?
spk05: If you talk on an absolute level there, Kevin, there is more shipments into the DG and margins on a quarter-on-quarter basis, we would expect them also to be slightly healthier again compared to the third quarter. So we will have both a volume effect and a favorable margin effect that then gives us more EBITDA dollars basically for the quarter for the reasons that we talked about, a seasonal, but also given the Maxion business recovery.
spk24: That's all from me. Thank you.
spk20: Thank you. One moment for our next question. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. Our next question comes from the line of Donovan Schaefer of Northland Capital Markets. Please go ahead.
spk02: Hey, guys. Thanks for taking the questions.
spk18: So I want to kind of flesh out the CNI side of the business a little bit, you know, just because, you know, you are kind of a sprawling organization. You've got a heck of a lot of products to offer. And, you know, historically there was, you could do some larger CNI type sales with a direct force. You know, you talked about like agrivoltaics and stuff. But then there's also historically when part of SunPower, there was the CVAR channel, you know, commercial value added. resellers. I kind of forget if that's still something, you know, that SunPower owns in the U.S. market or if you have your own C-Bar channel in the U.S. while also having like a direct CNI channel. And then what that's like in Europe. And also, again, with all the product offerings, you know, you have cases where IBC can be fantastic if roof space is limited. But then, you know, if you're talking about like a big box retail store, you know, maybe they'll go with P series. And then you even have stuff that like the, the Maxion air panel that, you know, was, was going to be pretty, was going to be lightweight so that you could go on, you know, rooftops in Europe that are a hundred years old and not have to retrofit the building. So there's a whole suite of stuff you've got there and kind of different channels. So I'm just wondering if you can kind of update us where, the bigger parts of that are where the emphasis is and kind of just help us to think about it instead of just, again, a real sprawling offering. You've got any clarification, anything there would be helpful. Thank you.
spk06: Sure. This is Peter. I'll take that one. First of all, congratulations on the new baby.
spk01: Thank you.
spk06: Probably not getting much sleep. So, CVAR was kind of the organized channel approach that SunPower had for many years. And in fact, we have a similar channel in Europe. SunPower, I believe, got out of that business some time ago. We've continued to serve commercial customers in Europe. generally through a similar structure where a lot, many of the installers do both, but some of the installers are specialized primarily in small commercial, you know, when we say small commercial, it's up to say half a gigawatt, half a megawatt in terms of roof size. And as you said, there's certainly a fair share of installations that that can benefit from the higher efficiency, higher productivity, shade tolerance, all the things that our technology can deliver. And in addition to there's, you know, some owners that own the building want a longer term energy delivery prospect as opposed to being primarily focused on year one savings. So you see the same kind of distribution of buying behavior in commercial that you do in residential. And we cater to the premium part of that market. In the U.S., we do have kind of, I'd say, legacy connections to some of the players, the EPC players that serve that small commercial, light commercial market. And there's also a reasonable amount of demand in slightly larger behind-the-meter applications where because of limited land space or because of expensive BOS in the case of a car park where, again, our product makes a lot of sense. And then, as you mentioned, Maxion Air, planning to introduce that in a little bit higher volumes next year, serves a specific segment. So the C&I market's not new for us. I think what is new is more of a bias towards that market to mitigate a little bit of slack on the resi side until that inventory clears.
spk08: Right. I guess what I would add, particularly in Europe, we don't talk a lot about it, but for example, in Italy, we already do a fair amount of CNI business. Up until recently, we have been very supply constrained on our IBC product, so It hasn't been a huge focus for us, but given that we have a lot of historical knowledge and, like Peter said, some legacy connections here, it's something we feel like we can move into fairly quickly. You also mentioned Maxion Air, which is still in our plans, and you're right. That could be a really excellent product for a number of different applications.
spk18: Okay, and then a second question I have is, this is for you, Bill. I watched a video clip of you from Interstellar Europe. I believe I'm kind of trying to recall this off the top of my head, so I might be remembering some things incorrectly here, so feel free to correct me if I'm wrong. But in the interview, you were talking about plans to move to TopCon with the P-Series shingling. I'm just curious if it's... if you have any kind of a timeline around that, if that's premature, and then if there would be meaningful investments that would need to be done, or if this is basically just, you know, using really the same type of slicing and dicing, you know, shingling equipment that you have, and there would just be sort of additional validation or certification work around shifting or enabling to do top cons. And lastly, if it's just about kind of keeping up with general solar trends or if there would be any sort of special incremental technology benefits, I mean, or performance benefits. You know, I know you get an uplift in durability, you know, efficiencies and stuff with the current, you know, monoperc cells. Is any of that kind of magnified or multiplied if you started doing this with TopCon?
spk08: Yeah, okay, great. Good question. Yes, our new U.S. factory will use Topcon technology. It's maturing rapidly right now in the industry, so there's not very much technology risk with it at this stage. That being said, you know, it does get harder and harder to make high-efficiency cells. The further up you move in the efficiency charts, our intel is that There are a lot of companies in the top-con space that are currently still struggling with yields and costs. Our long, long experience in high-efficiency technology actually puts us in a preferred position to address some of these issues, because when we start to converge on very high-efficiency solar cell designs, a lot of the issues converge. as well. So we have technology solutions and expertise that I think can make us a really world-class Topcon manufacturer. And so that's part of our strategy. Everything going forward will likely be Topcon technology. Whether or not we retrofit some of our old per capacity TBD, but because that product's still doing very well, being able to import that into the U.S. and we've got it contracted out for a long time.
spk06: And all of our technology going forward for our performance line will be top-notch.
spk08: That's right. Sorry, for the performance line. Of course, we're going to continue to grow and expand our IBC portfolio as well.
spk18: Okay. And just to be clear on a couple of things. So, Bill, when you said yield, you know, other companies are struggling on yield. You're talking about the manufacturing yield, not like an energy yield or something for
spk08: Perhaps a little bit of both.
spk18: Okay. And then you're saying, so there would be a sort of retrofit of some kind that would be required for, say, like the Mexicali facility. Not that you would necessarily, you know, you're not.
spk08: Yeah, yeah. We built those facilities just a couple of years ago. We had seen this trend coming, so we We did plan additional space in the facilities to upgrade if necessary. It's just a pure question of economics. Does that additional investment pay back? And so we'll do that math, and when the time comes, we'll consider that. But for right now, we have a lot of work on our hands to build a three gigawatt factory here in New Mexico, so we're going to focus on that. Yeah, no kidding.
spk17: Okay, well, great. Thanks, guys. I'll take the rest of my questions offline.
spk20: All right, thank you so much for your questions. One moment while we queue our final question. And for this question, we'll welcome back Philip Shin of Roth MKM. Please go ahead.
spk15: Hey, thanks for taking the follow-ups here. Just had a few on the DOE loan guarantee and the new facility. was wondering if you could give us a sense of the timing of when that could be finalized. Are we getting closer? Could it be in the next month or so, or do you think we have to wait until year-end or perhaps into 2024? And then also, can you remind us or help us understand what the wafer sources would be? And so have you, with this announcement, locked in a secure supply of wafers? If you mentioned that earlier, sorry if I missed it. And then finally, why announce this facility today when the DOE loan guarantee has not been provided? So thanks for taking the follow-ups, and I appreciate it.
spk08: All right. Thanks, Phil. Well, you know, the site selection process, unfortunately, has taken a little bit longer than we'd like. It really has been the bottleneck for completion of DOE due diligence. There's a certain amount of site-specific diligence they have to do, including things like environmental reviews. Also, we really can't finalize the financial model for the project until we knew the site-specific details. So that's done now, and so we expect that we're going to be able to move this project forward at a rapid clip from this point. I'm sort of hesitant to forecast timing. You know, perhaps Peter can give some color on that, and also Peter's going to look closer to the wafer supply situation.
spk06: Yeah, on the timing, Phil, as Bill said, I think this is the last major obstacle out of the way here in terms of completing the DOE diligence. We'll see what that turns into in terms of timing of the conditional approval. On wafer supply, I think our objective in the midterm on this project is to be able to source wafers in the U.S. There's a variety of people looking at that. We're in conversations with those. But at the time that we would sign the DOE loan and give the formal go-ahead on the project, we would have all of our wafer supply locked up. That's normally the way we handle, as well as the customer offtake commitments. And in terms of the why now, I would say that we have a site event planned for tomorrow, and we thought that investors would want to know about it.
spk08: Yeah, and I mean, it does allow us to get moving, right? We will do a certain amount of engineering and maybe some long lead time risk purchases to keep the timeline moving forward. So, We really couldn't unlock all of that until we picked the site.
spk15: Great. Thanks for the additional color, and I'll pass back.
spk20: Appreciate your question. As there are no further questions, we will now conclude the call. Thank you all again, and you may now disconnect.
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