Maxeon Solar Technologies, Ltd.

Good day, ladies and gentlemen. Welcome to the Maxion Solar Technologies fourth quarter 2023 and first quarter 2024 earnings call. Currently, all participants are in 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 like to turn the call over to your host, Mr. Robert Leahy of Maxion Solar Technologies. Sir, you may begin.

Thank you, Operator. Good day everyone and welcome to Maxion's fourth quarter 2023 and first quarter 2024 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 20F, 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. Good morning. It has been a while since our last earnings call, and we have a lot to communicate today. Since the middle of last year, Maxion has been under significant pressure due to the unprecedented market dislocation caused by worldwide Chinese module oversupply, high interest rates, and policy changes. Maxion also suffered from the termination of our SunPower supply agreement and delivery pushouts by two of our primary utility scale customers. These headwinds unfortunately coincided with the peak of our utility-scale prepayment amortization, and as a result, the company has been facing a serious cash flow challenge. To address this, we recently negotiated commitments for significant liquidity support from our largest shareholder, TZE, and we successfully restructured our 2025 convertible bonds with the majority of the debt expected to be converted into equity later this year. Unfortunately, these transactions will require the issuance of a large number of new shares, resulting in substantial dilution to existing shareholders. I'll now provide further commentary on the market dynamics that caused us to take these actions and provide additional details on the financing transaction. Kai will then review our fourth quarter 2023 and first quarter 2024 results and provide our outlook for the second quarter and the rest of 2024. We'll then conclude with Q&A. First, as a reminder, Maxion initiated a series of capacity restructuring initiatives last October. We initiated the shutdown of our Maxion 6 cell capacity in Malaysia and pivoted the Maxion 7 commercialization plan from incremental capacity to a retrofit of our Maxion 3 capacity in the Philippines. While these actions are on track and projected to enhance profitability when completed, We're now fighting battles on a few additional fronts. In DG, our efforts to grow volume in the US through our new US dealer channel have been impacted by the general market slowdown, particularly in California. In Europe, the abundance of modules being sold at prices in the low teens has challenged our margin profile and further curtailed demand for our products. The dramatic market shift that started in mid 2023 left us with large amounts of inventory that tied up cash And so far, our efforts to work down these inventories have been at a slower pace than we initially anticipated. On the utility scale side, two of our large customers experienced significant project delays, and we have been unable to quickly reallocate the affected volumes. And as a result, our financial output for 2024 will reflect the impact of these continuing headwinds. In addition to these challenges, our liquidity was also impacted by a utility scale prepayment amortization schedule, where we have been amortizing customer prepayments that were received in 2021 and 2022 and are now collecting only a portion of the associated sales revenue as cash. In response to the perfect storm of cash and profitability challenges, the company and our advisors assessed all potential sources of funding and found that the only viable option involved new liquidity from our largest shareholder and secured creditor, TZE. TZE has agreed to invest $97.5 million into the company via a debt instrument and has also committed to an additional $100 million equity investment, in each case subject to regulatory approval. In addition, substantially all of the holders of the $200 million 2025 convertible notes have agreed to exchange their bonds and accrued interest into new bonds due in 2028. which are convertible into equity at the note holder's option starting July 2nd, and $137.2 million of which must be converted into equity upon TCE's equity investment. Following the $100 million equity investment by TCE, their ownership of shares outstanding is planned to be at least 50.1%. While we believe these transactions are necessary to stabilize our balance sheet, and allow management to focus on returning our business to profitability, they will also result in a substantial dilution for existing public shareholders. I'll now provide an update on our utility scale and DG businesses. In utility scale, we had established solid momentum heading into 2024 with our module operations running well and a solid backlog extending deep into 2025. However, in early Q1, we were informed by two large customers that they were experiencing project delays and would be unable to accept module deliveries based on the contracted schedule. We recently terminated one of these contracts for cause and are seeking damages, and we are working with the other parties to find a mutually acceptable solution. Due to the long sales cycles associated with this market and the broad availability of low-price modules from Southeast Asia and India, we were unable to replace the lost demand in the immediate term and have had to curtail production at our utility-scale solar cell and module factories as a result. This not only increased our product costs due to unabsorbed manufacturing overhead, but also meaningfully impacted our near-term top-line and cash generation capability. Going forward, we are seeing an improving price and demand environment driven by recent changes in the U.S. trade policy landscape. including increased tariff risk due to the imminent removal of the Section 201 bifacial tariff exclusion, as well as potential new ADCVD tariffs. We believe Maxion is not and should not be a target for such import tariffs, and we are actively engaged in both processes in asserting our view that our supply chain should be outside the intent of these proposed tariffs. Finally, we are making continued progress toward launching domestic manufacturing in Albuquerque, New Mexico, In DG, while we continue to make progress ramping our U.S. dealer channel, market demand has been sluggish, particularly in California, where many installers are still adjusting to NEM 3.0. We're focused on dealers who are familiar with our product and are skillful at monetizing its unique attributes. Despite increased availability of alternative premium modules over the past few years, our product's reputation as the undisputed world's best module remains very much intact. We see this clearly when dealer owners install our products on their own homes and offices and choose Maxion for displays on websites and in customer showrooms. We signed up more than 100 U.S. dealers since our last earnings call, including some of the most proficient and experienced sellers of IBC products. Keep in mind that it typically takes a quarter or two for our recently onboarded dealers to ramp their booking volumes with Maxion branded products. We have also been aided in the U.S. market by our successful engagement with some of the leading lease and PPA platform companies who have added Maxion to their ADLs and who are helping refer an onboard dealer seeking to combine our premium panel offerings with their financial products. Outside of our U.S. channel business, we completed shipments to SunPower on the contract we negotiated last November. We do not currently have any further supply contracts in place with SunPower and our plan going forward is to address the U.S. market primarily through our own dealer channel. In Europe, our sales team is still working through a continuation of the market's oversupply conditions that began in Q3 of last year. Our current focus is on keeping our core channel partners loyal and transitioning our Performance Lane products to the latest TopCon-based version. I hosted 23 of our European elite dealers at our Mexico ModCo last quarter, and was pleased to find our top partner still very loyal to our product. Just like their peers in the U.S., many of them have Maxion systems on their own homes and appreciate having a direct relationship with a high-quality manufacturer that has had a stable presence for nearly 20 years. These attributes are helping us maintain our historical price premium levels in percentage terms, but the region as a whole has seen dramatic price reduction, so our absolute prices have also been affected. Due to the difficult market environment, our volumes are down year on year, with the greatest impact in our lower-tier expansion market, where we work through distributors, and where we have a less direct connection with the channel partners. While we're not in a position to pinpoint when in 2024 supply and demand will rebalance, we feel good about our position with key dealers who understand the unsustainable nature of the current pricing environment. We're also pleased to report that our first storage product is gaining traction with elite dealers in Italy, where it is sold as a bundled and branded offer. We look forward to providing more guidance on our Beyond the Panel products in future quarters. We believe our current strategies in DG and utility scale are on track to return the company to profitability early in 2025, based on our continued transformation activity, as well as our track record of technology leadership and unique go-to-market channels that together enable our premium pricing. Based on our experience over the past year, we also plan to focus on reducing customer concentration across our business to increase resiliency against market volatility. And we look forward to an expanded relationship with TCE and their parent company, TCL, whose financial strength, multinational presence, and global operation bring considerable balance sheet support and manufacturing expertise. In the technology arena, we're seeing the industry moving increasingly towards higher performance platforms where we have strong intellectual property, with patent portfolios covering Shingling, Topcon, and IDC technologies. Regarding Topcon, we recently initiated patent infringement cases in the U.S. against Canadian Solar, Hanwha Q-Cells, and REC. This is part of a larger strategy to monetize our Topcon IP through licensing arrangements. While the emergence of Topcon as a mainstream manufacturing platform is a relatively recent development, our innovation around the underlying passivated contact technology dates back over 15 years. And as a result, we have a robust portfolio of early fundamental patents covering both front and backside contact cell architectures. We also plan to vigorously defend our IBC patents and have actions against ICO already underway. Now let's turn it over to Kai to discuss the financials. Thank you, Bill.