Maxeon Solar Technologies Ltd. Q1 FY2022 earnings call

Management Statement and Operational Highlights

• DG Channels: Maxeon's DG model is unique, with over 15 years of downstream market experience, strong relationships with over 1,700 installers. It has robust growth in Europe, especially in the Netherlands and Italy, and is expanding in the U.S. with partnerships and new product shipments.
• Utility-Scale: Maxeon has competitive advantages in the U.S. due to reliable delivery security and is evaluating expansion options. It has differentiated panel technology with a 40-year warranty on IBC panels and progress on Maxeon 7 technology.
• Beyond the Panel: Unveiled SunPower One integrated home energy solution launching in Australia Q3 and Europe Q4, including solar panels, battery storage, and energy insights. Introduced SunPower Reserve storage product and plans to announce an EV charging device. It leverages the strong channel and brand, partnering with best-in-class suppliers.
• Other Focus Areas: Focus on employee safety, supply chain management with price increases and shipping container design, and capacity transformation on track to exit 2022 with more than triple Q3 '21 capacity.

Segment Performance

• DG Channels: Q1 European DG sales volumes exceeded U.S. DG volumes, with revenue up over 75% year-on-year. In Italy, DG market share increased to over 25% in Q1 2022, up from the low 20s in 2021 and high teens in 2019. Latin America order count increased to approximately 50, up more than 50% year-on-year. In the U.S., began shipping first IBC modules to DG commercial customers and executed an agreement with CED Greentech for a residential installer channel program. Margins in the DG segment were affected by out-of-market polysilicon contract, factory underutilization, and supply chain costs, but expected margin benefits from price increases in the second half.
• Utility-Scale Segment: Fixed pricing for future deliveries was industry standard, but now some suppliers are walking away from underwater contracts, and others like Maxeon are bidding cautiously. Credible global developers are now accepting cost index risk sharing on future contracts. Maxeon has growing success in the U.S. Utility-Scale market with 700 MW of 2023 delivery bookings and favorable prepayment features.

Guidance

• Q2 shipments projected in the range of 460 megawatts to 490 megawatts, revenue expected to be in the range of $215 million to $230 million, non-GAAP gross loss projected to be in the range of $15 million to $25 million, adjusted EBITDA expected to be in the range of negative $37 million to negative $47 million, and capital expenditures expected to be in the range of $20 million to $24 million.
• Second quarter expected to be the trough in profitability this year. DG business is gross margin positive excluding out-of-market polysilicon, and expects to be beta positive in DG by the end of 2022. U.S. Utility-Scale contracted ASPs in 2023 are expected to support the long-term financial model.

Risks

• Supply Chain: Disruptions including polysilicon prices, freight rates, and geopolitical events like COVID in China and the war in Ukraine.
• Policy: Uncertainty around U.S. Department of Commerce investigation into solar module circumvention of tariffs and the impact of SEMA legislation on U.S. manufacturing expansion.

Question and Answer

Q: Alex Vrabel from Bank of America on DG segment volumes, U.S. market, and SEMA legislation A: Jeff Waters and Peter Aschenbrenner discussed DG segment growth, readiness for SEMA legislation, and potential expansion in case SEMA does not pass Q: Philip Shen from ROTH Capital on margin outlook, contract pricing structure A: Jeff Waters and Kai Strohbecke talked about margin improvement, price increase structures, and margin projections for DG and Utility-Scale Q: Grace from Goldman Sachs on 2Q guide impact factors, margin by segment A: Kai Strohbecke explained quantification of 2Q guide factors and margin projections for DG and P Series Q: Pavel from Raymond James on Europe demand, AD/CVD impact, and China JV profitability A: Jeff Waters and Peter Aschenbrenner discussed Europe demand trends, AD/CVD impact on Maxeon, and China JV profitability Q: Kevin Pollard from Pickering on U.S. Utility business ramp, margin charges, and 2024 bookings A: Jeff Waters and Kai Strohbecke addressed U.S. Utility business ramp, inventory write-downs, and 2024 booking expectations Q: Alex Vrabel from Bank of America on SunPower One rollout A: Jeff Waters discussed SunPower One's economics, partnership model, and revenue/margin potential from Beyond the Panel offerings