Maxeon Solar Technologies, Ltd. (MAXN) on Q1 2021 Results - Earnings Call Transcript

Operator: Good day Ladies and Gentlemen Welcome to the Maxeon Solar Technologies' First Quarter 2021 Earnings Call Currently all participants are only listen-only mode. Later we will conduct the 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. Gary Dvorchak of The Blueshirt Group. Sir you may begin. Gary Dvorchak: Thank you, operator Good day everyone and welcome to Maxeon's First quarter 2021 Earnings Conference Call. With us today are Chief Executive Officer Jeff Waters; Chief Strategy Officer Peter Aschenbrenner and Chief Financial Officer Kai Strohbecke. Let me cover a few housekeeping items before I turn the call over to Jeff. As a reminder a replay of this call will be available later today on the investor relations page of Maxeon's website. Jeff Waters: Thank you Gary and good day everyone; I'll start by getting a business overview and covering recent accomplishments. I will then review our financial performance and outlook and we'll conclude the Q&A. On our last earnings call I explained our three pillars of profitable growth. These are our leading panel technology, our unique focused approach to utility scale business and our strong global brand in BG channels. The entire company is focused on the execution of these pillars and we're making exciting progress. First on our leading panel technology two days ago we unveiled Maxeon Air a novel ultra-thin, ultra-light and flexible panel technology that eliminates glass and aluminum framing. This innovation is disruptive in many dimensions and nearly half the weight of conventional panels Maxeon Air will enable solar deployment a low load commercial rooftops that are not engineered to accept the weight of a conventional panel. We estimate this unserved market to be over four gigawatt just within Europe alone. Using a strong factory applied polymer. Backing these peeling stick panels are easy to install and are therefore expected to measurably reduce installation time and cost. You can learn more on the Maxeon website. In addition to low load commercial applications we plan to extend Maxeon Air to other markets such as residential rooftops and large-scale loading power plants in the future. We believe the competitive mode around Maxeon Air is substantial and that this form factor will not be easily replicated by our competitors because it's predicated on the unique capabilities about surprise IBC cell technology. In addition to superior efficiency low power degradation and leading the liability and durability Maxeon IBC Solar cells also have the unique ability to share current and reverse bias while shaded that's avoiding damaging or dangerously high temperatures. This feature is particularly important where panels are adhered directly to the rooftop. Kai Strohbecke: Thank you Jeff and hello everyone. I appreciate the kind words. I am excited to be part of this team of highly passionate and talented people who are driven by Maxeon's mission of powering positive change. I also look forward to meeting all of you our analysts and shareholders in the weeks ahead. Before we dive into the results I'd like to discuss a few changes that we are making to the presentation of all the numbers. We want to provide a more consistent and meaningful picture of on operational performance to all investors. First starting now we will report adjusted EBITA excluding the Mark-to-market sale value re-measurement of our prepaid-forward and physical delivery-forward. This we measure gain or loss on those instruments will be excluded because it is not considered part of our core operating activities nor do these gains or losses contribute to a meaningful evaluation of our current past or projected operating performance. Secondly, also starting now we will report non-GAAP gross profit and non-GAAP operating expenses by excluding stock-based compensation expenses and restructuring charges. We have always excluded stock based compensation expenses and restructuring charges from adjusted EBITA. So this change compliments that practice adjusted EBITA non-GAAP gross profit and non-GAAP operating expense how we evaluate operating performance internally we believe that consistently presenting these measures will aid your understanding of all business. For more details, including a reconciliation of GAAP to non-GAAP financial measures, Please refer to the section reconciliation of non-GAAP financial measures in our Form 6K filed today. With that, let's now turn to our financial results. I will discuss the drivers and details of all first quarter performance and then provide guidance. As expected Q1 results track the outlook we offered about 6 weeks ago. The team at Maxeon executed well, and we are pleased with our accomplishments and progress in the first quarter. Q1 revenue of $165 million was slightly above our projection of $160 million. The 33% sequential revenue decline reflected the expected seasonality in DG and the pause and the cords in large-scale. In addition note that the fourth quarter of fiscal 2020 was a regular 14 week quarter while Q1 of 2021 was a regular 13 week quarter. The 28% decrease in revenue versus last year Q1 is mostly the result of the large scale cost. The revenue declines both sequentially and year-over-year track shipments, but we are offset in Q1 by higher ASP's versus the prior quarter. Overall ASP was up 16% sequentially by product line IBC revenue per Watts increased to $0.53 cents from $0.49 sequentially while performance line revenue per watt increased to $0.28 versus $0.25. The sequential increase in overall ASP resided from a combination of factors and mix shift to a higher share of IBC sales driven by DG, as well as favorable Euro versus us dollar exchange rate and some price increases as we pass on higher supply chain costs where possible. Jeff Waters: Thanks Kai. We have great confidence in a growing and increasingly profitable Maxeon this confidence is predicated on three unique pillars of growth each of which has the ability to transform us. Over our first few quarters as a company you're seeing tangible execution for each of these pillars that should provide confidence and excitement in our potential. For decades we've had the world's leading panel technology and now you see us extend that capability with both Maxeon 6 the world's highest efficiency panel available on the market and with Maxeon Air a disruptive solar technology that has the potential to change the way the world employs solar. And with our focused approach to the large scale business you're seeing us quickly establish traction in the U.S. market because of who we are as a company and the performance quality and reliability that comes with that. And those same attributes also set us up well for a successful return to large scale market outside of the U.S. once the supply chain returns to normal. And lastly with our strong brand and unique global DG channels you're seeing us continue to outgrow the market in key regions like Europe. We're also seeing us make progress on our Beyond the Panel strategy as we begin monetizing our channel and brand by selling integrated micro inverters with more system products to come. All of us at Maxeon are energized by the progress we're making and are focused on execution. A year from now we'll look like a very different company and we'll see our execution making its way to our top and bottom line. We thank you for coming along with us on the journey. Now let's go to the Q&A session. Operator please proceed. Operator: Thank you. Our first question comes from Brian Lee of Goldman Sachs your line is open. Brian Lee: Hey guys thanks for the questions. I guess just first-off on the gross margin trajectory I know you're out from now mix is going to help a lot you get some scale but in the interim it seems like you alongside the rest of your peer group is facing a lot of cost pressures margins are down ticking everyone's trying to figure out what the bottom is is Q2 the bottom for you or do you think we continue to sort of see margins stay at these depressed negative levels through the balance of the second half just trying to get a sense of what you think is a reasonable cadence in the margin recovery to be thinking about our modeling and then I had a follow-up. Jeff Waters: Sure Brian. Thanks for the question. This is Jeff and I'll add a little bit of detail. And then Kai can maybe add some more. I’d say in general we like everybody are keeping a very close watch on the supply chain. I would say it's encouraging and that recently we are seeing some of the supplies and costs start to stabilize. So glass is a good example of that. Where we’re -- we see that as peak and it's now actually coming down again we're not quite at the pre-COVID spike levels but it's heading in the right direction. So the same thing with logistics we're seeing improvement there again not exactly where it was a year-ago but making progress. I think given that it's really obviously we're all watching to see how quickly that comes back in the second half. I think we're cautiously optimistic that we’ll see costs improve in the second half and certainly that'll be helpful on the margin side. There are other pieces that we're doing. As you mentioned we do have new products coming in. So Maxeon 6 will start to ship as we get into the Q3 and Q4 that'll help with margins. We're always working on cost reductions. So we're not just sitting back but I would say from a supply chain perspective we're cautiously optimistic. Kai anything else you'd like to add to that? Kai Strohbecke: Yes I think that's right. So of course those headwinds that Jeff described that are not really under our control. But there are also other things that work in our favor the seasonality and the things that we’re are doing internally with Maxeon 5 and 6 via AC panels the DG business in general that go in our favor. So of course we also have the out-of-market poly contract that can be sometimes a little bit lumpy at times how it hits our P&L. But again I think there is a possibility that we'll see margin improvement in the second half probably due to the internal factors more pronounced towards the back end of that half but cautiously optimistic as Jeff said. Brian Lee: Okay fair enough. And then I guess the second question here just on the pause in large scale in China you're talking about 2022 sort of getting back to some level of normalcy in that business. Can you maybe elaborate a bit on what you're seeing out there right now why you don't expect that to maybe recover faster and then what gives you whether it's visibility or orders you're seeing what kind of gives you the confidence that 2022 you'll see that pause sort of really ease-up? Thanks guys. Jeff Waters: Sure so say that there are we're starting to see the pricing overseas and the supply chain costs start to hit closer to an equilibrium. So as we look into Q4 I’d say if you go back to maybe a quarter ago there was a huge mismatch in the overseas market outside of China with where the costs were we're seeing that now come much closer. And I would say it's a dynamic situation we continue to assess but things are definitely trending in that right direction. And you would expect that even if supply chain costs stay where they’re. But overseas costs or pricing would start to fall in line. That's why we're confident with 2022 still waiting and seeing what happens here as we get into 2021. There are deals that we're actively engaged in we're very attractive supplier to most of the planet. And so we do have a very large pipeline we get visibility into a lot of great opportunities outside of China. And I’d say as we get towards the end of ’21 or more optimistic ‘22 I would say our optimism is strong. Brian Lee: Thanks a lot. Operator: Thank you. Our next question comes from Philip Shen of Roth Capital Partners. Your line is open. Philip Shen: Hi everyone. Thanks for taking my questions. Congrats on the 1 Gigawatt P-Series deal into the U.S. Just curious if you guys increased pricing on your P-Series product recently as a result of the supply chain challenges or was it did the market pricing increases kind of put your P-Series products in a more relative competitive positioning if that makes sense. And so it became a more natural and easier answer for customers to buy the P-Series here in North America. Thanks. Jeff Waters: Yes thank you Phil. I’d say the pricing we have a very strong pipeline and very strong demand in the U.S. again for our product of the P-Series side that we just announced last month. And we look at the pricing that is coming in from customers it is in line with the costs that we're seeing. So we had spoken when we first talked about this U.S. P-Series effort that we would expect to see gross margins for the whole plant being in line with our 2023 target of 15%. There'll be a ramp-up over that time but we think about that 2023 timeframe we expect the gross margins in the 15% range. We're still seeing that. And if anything I’d say the pricing in the U.S. has been pretty consistent with those price increases that we've seen in the supply chain. So it's calibrated quite nicely. Philip Shen: So fair to say the price increases in the U.S. did help the value proposition for P-Series near-term? Jeff Waters: Yes I suppose I don't know that I'll necessarily think about it like that. But we think about what we bring to the party as a company that has a plant right down in Mexicali as a company that is a U.S. publicly listed company with a strong brand and reputation. I think that's really what's driving the funnel for us. It's not really so much the rising costs that are coming maybe from some of our Chinese competitors. It's really I think the difference in just who we are as a company which makes us fAirly unique in that space. So I think about more along those lines that I don't think things would have been that different without this supply chain disruption that we've seen. Philip Shen: Okay thanks. As for Maxeon Air that seems like a very interesting unique product to what the unique value proposition was wondering if you could share how you think that pricing the cost structure kind of lines up relative to your other products perhaps if you can’t talk about the absolute cents per watt maybe perhaps you can talk about on a relative basis? Jeff Waters: Yes it is a very exciting product selling it is I’d say really one of the many parts of the magic of it is that it really does lower installation costs. And so that will really give us the ability to get decent pricing on it we'll be able to capture the value or at least a percentage of the value that comes from the lower installation costs. So we would expect ASPs for the Maxeon Air product could be higher than what we're seeing with like products going into like markets on IBC. So again I think it's a great product. And we expect also given that we're going to be going after projects and low load commercial rooftops at least in the near-term with a product that nobody else can really compete with. We think it's going to allow us to sell at healthy ASPs with good profitable margin but in a way that will help grow the deployment of the product. Philip Shen: Great where do you expect to manufacture the Maxeon Air? Jeff Waters: We’ll start in France. One of the beauties of Maxeon Air is that it can be quickly transported to any of our factories. It borrows significantly from our current module assembly we’re producing in France that is go to Europe is the initial market that we see for the product but we have the ability to flexibly put it into any one of our markets. Philip Shen: Great from a bankability standpoint and encapsulant standpoint are you using the traditional EVA or can you talk about how bankable the product is now? And what kind of volume could we see sold in ‘21 as well as ’22? Jeff Waters: So let me take the first end of that. And then call Peter Aschenbrenner speak maybe a little more specifically on EVA. So the way we think about Maxeon Air we’re going to have pilot production going now we have already tested it on different at least in five different sites across different continents. In 2022 you'll see the initial ramp of the product and then in 2023 I think that's when you're really going to see a kick into high gear when Maxeon 7 cells become available Maxeon 7 cells bring better better performance even better performance than we get with our current cells when it comes to reverse bias a breakdown in heat that can get generated in shaded situations. So we expect I would say a steeper ramp once we get into the 2023 timeframe. Peter do you want to cover the EVA part of Phil’s question? Peter Aschenbrenner: Yes Phil this module does not use EVA encapsulant as in fact we don't use that in any of our products. We've been doing a fAir amount of encapsulant development work over the past five plus years and this non-glass product uses a new stack of materials that is atypical for glass panels. In terms of bankability we've been working with many of the testing agencies and with some of the membrane suppliers in Europe and we feel good about bankability currently as we're launching these first pilot installations in the second half of this year. Philip Shen: Okay great. Thank you both. I'll pass it on. Operator: Thank you. Our next question comes from Pavel Molchanov of Raymond James. Your line is open. Pavel Molchanov: Thanks for taking the question. As you know we have seen spot price of polysilicon doubled roughly year-to-date more than $20 a kilo now and yet your above market cost on your contract is actually going up in Q2 versus Q1 a little counterintuitive. Can you just explain how the math works? Jeff Waters: Yes Pavel thanks. Yes let me quickly go through that. So the out-of-market polysilicon is really two things one is what we're using in production and one is the ancillary sales that we sell some of that material that we're not using internally. And that can be sometimes the lumpy part that we're doing we're looking for opportunities to sell it of course we're selling it at a loss because the contract is locked in way above market prices. But we expect some of those sales in the second quarter to come in and that explains that lumpiness that’s not exactly tracking as you say maybe the volumes or where market prices are going. And also we’re periodically reviewing the baseline for those market prices and then adjust accordingly what we consider out-of-market. Pavel Molchanov: Okay understood. In Q1 there was a loss of $2 million on the non-controlling interest line I assume that's from the joint venture in China. Given the Premium module pricing that you guys have talked about because of the demand in China recently why would that JV be at a loss? Jeff Waters: Yes so maybe just to speak just speak on that it is the JV itself is currently in ramp mode. So as you know this we initiated volume production at two gigawatt that has scaled to five gigawatt and it's also in the process of scaling up to eight gigawatts. So you really are seeing a lot of transition costs as the factory begins to expand. And I think that's partially contributing to what you see we’re on a great trajectory within the JV to have a low cost product we've got some new derivatives of the P-Series that were coming out toward the end of this year. And that coupled with the scale that we're getting as we scaled the factories we expect to see better results coming out of the JV in future quarters. But I think what you're really seeing here is more of a transition as we're beginning to sell. Pavel Molchanov: Got it that’s helpful. And final question this one is also on China as you're well aware a lot of conversations about the forced labor issue in Western China in the Uyghur community as it relates to polysilicon supply can you just talk about your sourcing of poly for the Chinese operations and the steps you're taking to avoid any linkage to the forced labor concerns? Jeff Waters: Yes so as you know for the IBC products that we produce out of Malaysia and the Philippines with our fabs we source all of that poly not from the United States for the JV operation out of HSPV going back any close to five years ago we implemented a tracing protocol for polysilicon and for the supply chain. And it was really driven by some of the low carbon footprint business that we were checking out of France and some other markets. So we have a process in place to be able to trace that and that's something that we're now expanding within the factory within the JV so that we have the ability to give assurances to U.S. customers and even beyond say here soon even beyond U.S. customers for the product and that includes what comes out of China but also what will happen out of the joint venture that we have with our Eagle joint venture excuse me with our U.S. P-Series joint venture out of Mexicali and Malaysia the wafers coming into that will also have that same traceability. So let's say that coupled with all the discussions that we've had with our direct suppliers we feel really confident about our position and certainly as a company we've signed the United Nations Global Compact which also includes commitment to Elimination of All Forms of forcing compulsory labor. So as a company we feel really good about our position. Pavel Molchanov: Okay good to hear. Thank you guys. Jeff Waters: Thank you Pavel. Operator: Thank you. One moment please. As there are no further questions we will now conclude the call. Thank you all again. You may now disconnect.
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Maxeon Plunges 26% Following Q2 Earnings Report

Maxeon (NASDAQ:MAXN) shares experienced a significant drop of more than 26% in pre-market today subsequent to the release of the company's Q2 results. The reported revenue of $348.4 million was notably lower than the anticipated consensus figure of $378.23 million. Additionally, EPS stood at ($0.03), compared to the Street estimate of ($0.07).

CEO Bill Mulligan attributed the decline in the global distributed generation (DG) market's demand to various factors, including elevated interest rates, disruptions in California's policies, and a widespread accumulation of channel inventory.

Looking ahead to Q3, Maxeon foresees revenue to fall within the range of $280 million to $320 million, which falls short of the Street estimate of $395.3 million.

For the full year, Maxeon projects its revenue to be in the range of $1.25 billion to $1.35 billion, which is below the Street estimate of $1.51 billion.