Maxeon Solar Technologies, Ltd. Q4 FY2022 earnings call

Management Statement and Operational Highlights:

• CEO Bill Mulligan shared his first months as CEO, highlighting Maxeon's competitive advantages in global distributed generation and US utility scale markets. Mentioned the company delivered financial results in Q4 well above plan driven by strong shipment growth, solid ASPs, and COGS targets. Discussed the DG business in Europe and US, including Europe's growth, US new channel partnership, and the utility-scale business's multiyear backlog and capacity ramp.
• CFO Kai Strohbecke reviewed financial performance, noting Q4 shipments were 734 megawatts, revenues $324 million, non-GAAP gross profit $21 million. Gave guidance for Q1 2023 and full-year 2023, including revenue, gross profit, operating expenses, and adjusted EBITDA ranges. Highlighted progress in margin improvement and key levers for achieving long-term financial model.

Segment Performance:

• Distributed Generation (DG) Business:
  • Europe: Led in volume and revenue by the European team's direct-to-installer channel. Shipments in Europe grew over 25% year-on-year, approaching an annualized deployment run rate of roughly 1 gigawatt. Gained market share in key countries like the Netherlands, France, Germany, and Belgium. Blended DG ASPs in Europe increased over 30% year-on-year. AC module attach rate in Europe outside the US was above 20% of total DG shipments, with expectation of increasing AC mix in 2023. SunPower reserve storage solution and SunPower drive EV chargers expected to contribute meaningfully in 2023.
  • US: 2023 demand environment for DG is strong in segments with healthy demand for premium products, led by high cost of power locations. Partnered with Greentech Renewables for a new US channel, planning to exit 2023 with over 100 new Maxeon channel partners, selling Maxeon 3 technology with 40-year warranty.
• Utility-scale Business: Primarily focused on the US market. Has a solid and growing multiyear backlog of 4.2 gigawatts of supply backlog extending deep into 2025 plus options with advanced deposits for an additional 1.5 gigawatts through 2027. Performance line expected to ramp to full 1.8 gigawatt capacity by summer. Supply chain cost decreases contributed to better-than-expected fourth quarter results.

Guidance:

• Q1 2023: Projected revenues of $305 million to $345 million. Non-GAAP gross profit expected in the range of $30 million to $40 million. Non-GAAP operating expenses expected to be $37 million plus or minus $2 million. Adjusted EBITDA expected to be between $10 million and $20 million. Capital expenditures projected to be in the range of $13 million to $17 million.
• 2023: Projected revenues in the range of $1.35 billion to $1.55 billion. Non-GAAP gross profit expected to improve, non-GAAP operating expenses expected, and adjusted EBITDA expected to be between $80 million and $100 million. Expect margins to increase further throughout the year, with fourth quarter expected to be the best quarter in terms of margin dollars and percentages.

Risks:

• Supply chain cost fluctuations which could impact COGS.
• Market demand changes in DG and utility-scale markets.
• Policy changes that could affect the US manufacturing project with DOE, such as delays or changes in funding or regulations.
• Competition in the solar industry which could pressure ASPs and margins.

Question and Answer: Q: Julien Dumoulin-Smith asked about the margin inflection cadence and how to reach 15% gross margin by year end, and about the utility scale domestic manufacturing effort status with DOE.

A: Bill Mulligan and Kai Strohbecke responded that they expect business to improve throughout the year, with factors like operations improvement, supply chain cost reductions, and renegotiations contributing to margin improvement. They are in due diligence with DOE for the US manufacturing project.

Q: Philip Shen inquired about the updated relationship with SunPower, dealer network risk, and margin structure between Europe and US.

A: Bill Mulligan, Peter Aschenbrenner, and Kai Strohbecke answered that SunPower is an important customer, the dealer network is to address unaddressed market portions, and margin is better in the US due to better price and margins, with Beyond the Panel business boosting margins.

Q: Brian Lee asked about DOE loan guarantee process, ASPs in 4Q, and domestic content for US manufacturing.

A: Peter Aschenbrenner and Bill Mulligan replied that they are in due diligence with DOE, most ASPs in Q4 were from real product line strength, and they are not yet exposed to domestic content issues as they aren't manufacturing in US yet.

Q: Pavel Molchanov asked about European manufacturing plans in light of European Green Deal Industrial Plan.

A: Bill Mulligan and Kai Strohbecke stated that they monitor the situation closely and would consider options if economically sensible, with Europe being a key market and any European manufacturing likely to be different from past operations.

Q: David Arcaro inquired about Maxeon 7 ramp and US manufacturing facility financing.

A: Bill Mulligan said Max 7 pilot line is running successfully, and they are focused on DOE loan program for US manufacturing financing.

Q: Donovan Schafer asked about DOE process, 2023 shipment megawatts, and US manufacturing facility production timeline.

A: Peter Aschenbrenner and Kai Strohbecke answered that they are in DOE due diligence, won't provide specific megawatt shipment guidance, and expect US manufacturing facility to be in production within 2025 as previously expected.