Maxeon Solar Technologies, Ltd.

Good day, ladies and gentlemen. Welcome to Maxion Solar Technologies' third quarter 2023 earnings call. Currently, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this conference call is being recorded. And now, I would like to turn the call over. One moment.

Thank you, operator. Good day, everyone. and welcome to Maxion's third quarter 2023 earnings conference call. With us today, our 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.

Thanks, Rob. Maxion experienced dramatically different trajectories in our two businesses during the third quarter. Our U.S. utility scale revenue was up 10% versus the previous quarter, and we are on track to exit the year with fully ramped manufacturing facilities, a sold out backlog at higher prices that we expect to make material margin contributions in 2024, and the achievement of important milestones with respect to our planned U.S. factory. In our DG business, we face significant demand challenges caused by the suspension of shipments to SunPower and the effects of a broad market dislocation in Europe. I'll spend a few minutes now detailing these different market environments and the respective implications for Maxion. Kai will then review our Q3 financial performance and provide guidance for the rest of the year, and then we'll conclude with Q&A. The U.S. utility scale market is a key focus for us and our primary growth driver, with our existing North America utility scale supply chain reaching important operating efficiency and profitability milestones and our planned New Mexico factory entering the engineering and design stage. We believe that Maxion is positioned to be a leader in helping reshore advanced solar cell and panel manufacturing to the United States at meaningful scales. Towards this end, we are working intensively with the U.S. Department of Energy's loan program office to finance a 3.5 gigawatt solar cell and panel factory in Albuquerque. This capacity represents an increase of 500 megawatts compared with our original design. With site pre-construction work well underway, we've hired a general manager for the facility and have secured options on adjacent parcels to allow for future capacity expansion. In order to accelerate and de-risk the ramp of our U.S. factory, we plan to install a Topcon pilot line in our existing Fab 3 in Malaysia and expect this line to be up and running next year, well ahead of the anticipated factory ramp in Albuquerque. We expect this pilot line will provide valuable process development experience and serve as a training platform for copy exact technology transfer to our U.S. factory. Finally, we are advancing well in negotiations for multiple offtake agreements, which we plan to execute prior to the closing of the DOE loans. Q3 shipments in our utility scale business were at an annual run rate of over 1.3 gigawatts, with 100% of this volume shipped into the United States. Pricing increased from the first half of the year, and we expect pricing to further increase in 2024 as we transition to shipments for orders booked during 2022. Note that ASPs may fluctuate from 2024 onwards as we transition to index pricing structures tied to certain cost inputs. Contracted backlog now stands at 3.3 gigawatts for delivery through 2025, plus an additional 500 megawatts of supply allocated in each of 2025, 2026, and 2027. Let's now turn the attention to our DG business. Since June of this year, conditions have deteriorated rapidly due to an oversupply of Chinese commodity modules in Europe and SunPower falling short of their contractual purchase obligation. However, we continue to be bullish regarding the importance of this sector in the mid to long term. This view is supported by increasing global retail electric prices, the integration of battery storage to create smart and dispatchable systems, and the avoidance of grid congestion as a potential barrier to continued renewable energy penetration. The DG sector is currently experiencing headwinds associated with high interest rates, policy disruptions, as well as excess supply and inventory. None of these challenges are unique or unprecedented, but in combination, they have produced what is a very challenging industry environment. We are confident, however, that the DG sector will continue to be a vital part of the solar industry in the long run. We remain focused on our DG strategy, mainly developing, manufacturing, and selling the world's best solar panels through a differentiated direct-to-installer sales channel with increasing attachment of beyond-the-panel hardware and software that enables homeowners to control their energy usage. As many of you know, our recent financial performance in DG has been severely hampered by a dispute with SunPower that led us to suspend shipments from July through the end of Q3. I am pleased to announce that we have reached a settlement with SunPower earlier this week that enables us to resume shipments. The settlement calls for the parties to transact on 85 megawatts of IBC panels through February 2024 at previously contracted prices. and resolves outstanding claims and contract breaches. The parties have also agreed to end other contractual supply obligations by the end of this quarter, including purchase obligations by SunPower beyond the 85 megawatts and constraints on Maxion product sales to SunPower installers. Offering panels directly to installers will eliminate the markup SunPower has historically added to our product. allowing us to deliver the world's best panels to customers at more competitive pricing. This will enable our plans to aggressively ramp our sales in the U.S. market, leveraging our recent Solaria acquisition, which nearly doubled the number of dealers actively buying our product to over 170. The Solaria transaction also accelerated the development of our channel sales and marketing infrastructure. with the addition of key talent, including Vikas Desai, the former president of Solaria, who is now our North America general manager. Vikas was the original architect of SunPower's installer channel and successfully grew that business to over a billion dollar run rate in just five years. He will be focused on replicating that success here at Maxion. While we currently expect a year-over-year decline in the U.S. residential market demand in the first half of next year, with California being the key variable, we expect that demand will recover by the time we begin sizable shipments of our new Maxion 7 panels starting in mid-2024. Turning to Europe, our shipments were down 37% sequentially due to elevated industry-wide module inventories. In most key European markets, Maxion sells primarily directly to installers, which has allowed us to successfully maintain healthy ASTs and positive gross margins, albeit with reduced volume. Our Senpower Reserve battery product is now widely available to our dealers in Belgium, France, Italy, Spain, and Australia, and we have received excellent customer feedback regarding product quality and ease of installation. As we mentioned in our last call, we increased our sales focus into the commercial and industrial segment, And we are pleased to announce an early win as module supplier for Italy's Turin Airport, as well as a growing pipeline of similar high-profile projects in the region. Let me now say a few words about our IBC solar panel technology. Our sixth-generation panels were a big step forward compared with the second-generation products they replaced and have been a critical contributor to our DG business, particularly in the U.S. With near-term USGG volume expected to decrease due to the discontinuation of the SunPower offtake, we have made the decision to phase out our Maxion VI technology and focus on Maxion VII and future generations. We now plan to bring Maxion VII to market a full quarter earlier than previously planned, and we will reserve Fab V for future Maxion VIII capacity. We will pre-manufacture sufficient Maxion VI volume to ensure a smooth product transition to Maxion 7 in all of our key markets and plan to utilize the space freed up in Fab 3 to install the TopCon pilot line mentioned previously. We are very excited about our seventh-generation IBC platform, which is the first IBC technology developed and commercialized by Maxion since the spin. delivers increased efficiency and other performance attributes that will extend our technology leadership and allow homeowners to generate even more power from their limited roof space, thereby maximizing bill offset in this era of electric vehicle adoption. Since NREL efficiently crowned Maxion 7 as the world's most efficient solar panel back in June, our early stage production runs have continued to improve. with nearly half of our module output currently exceeding 24% efficiency. However, as we like to remind people, it's not just about efficiency. Maxion 7's architecture achieves these record performance levels while simultaneously controlling hotspots and other degradation issues that are common challenges for high-performance solar technologies, and which we observe with regularity in our competitors' products. We expect to start shipping Maxion 7 panels from next summer, which corresponds with the peak selling season in the U.S. residential market. Finally, I want to say a few words about intellectual property. With Maxion 7, we are taking another major step forward with respect to IVC architecture, and we are adding to our considerable IP moat in this field. As our competitors attempt to close the performance gap to our products, they are finding it increasingly difficult to navigate around the IP portfolio that we have developed over the last several decades. Earlier this year, we filed a patent infringement action against Tongwei and sent cease and desist letters to several European distributors related to our shingled cell panel technology. Yesterday, we filed a patent infringement action against Icosolar and European distributors related to our IDC solar cell architecture. With over 1600 granted patents and 360 pending patent applications across 30 countries, Maxion has a formidable IP portfolio addressing fundamental enabling elements for creating high performance solar cell and panel architectures. We plan to continue to defend our IP aggressively. In summary, Our U.S. utility scale business is on track to deliver increasing margins as we prepare to deploy our next major capacity increment in New Mexico. Although we and many others were surprised by the speed and magnitude of the changes in the DG industry this year, we are well positioned with our technology and channel initiatives and expect our DG margins to recover in the back half of 2024 as Maxion 7 is introduced. With that, I'll turn it over to Kai.