Q4 2020 Maxeon Solar Technologies Ltd Earnings Call
Good day, ladies and gentlemen, welcome to the Maxion and solar technologies fourth quarter and full year 2020 earnings call. Currently all participants are in a listen only mode. Later, we'll conduct the question and answer session and instructions will follow at that time and.
As a reminder of this conference call is being recorded and I'd like to turn the conference over to our host Mr. Gary divorce out of the Blue shirt group, Sir you may begin.
Thank you operator, good day, everyone and welcome to Maxine <unk> fourth quarter and full year 2020 earnings conference call with US today are Chief Executive Officer.
Waters' Chief strategy Officer, Peter Ash, and Brennan, Chief Financial Officer, Joanne Solomon and incoming CFO price drove back let me cover a few housekeeping items before I turn the call over to Jeff as a reminder of replay of this call will be available later today on the Investor Relations page of magazine and website.
On 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 20-F 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.
<unk> also posted a supplemental slide deck and the events and presentations page of Maxion and Investor Relations website. Finally, we want to point out that our full year 2020 results reflect the carve out of magazines results. While it was still a part of Sunpower. We began operating as an independent company on August 27, with that let me turn the call over to.
Maxion and CEO, Jeff waters, Jeff.
Thank you Gary and good day everyone.
Start by covering some key accomplishments over the past few months as well as a few of the challenges we're facing.
<unk> will then explain of major new initiatives that we expect will open substantial new market opportunities for us.
And finally, Joanne who will review our financial performance and outlook and then we'll go to Q&A.
I'd like to make a couple of comments at the outset, Firstly I want to thank you all for your patience as we prepare these results. This was our first close and audit of the Standalone company.
And as well given that we spun off midway through 2020, we needed to incorporate a portion of the year as part of Sunpower as well as the process of separating our operations from them.
On the CFO transition as you know Joanne is retiring soon and we're sad to see her go where.
We are excited though to be able to replace her with and equally talented and dynamic CFO high stroke.
Okay joined Us and Singapore from Micron technology, where he held senior financial positions for their global operations.
On the call with US today, having just started a few weeks ago.
The or do we CFO transition will continue over the next two months with Joanne, leaving the company at the end of May.
Now, let's discuss our financial performance.
We delivered solid fourth quarter performance, our first full quarter as an independent company. We continued to recover from the Covid induced disruptions earlier in the year of shipments and revenue grew sequentially from both the distributed generation or D G and large scale businesses.
Despite headwinds from the global supply chain challenges, we posted positive adjusted EBITDA.
Growth was balanced with the cash with sequential growth in both product lines as well is and all geographies.
We entered 2021 with the strong balance sheet carrying more than $200 million of cash close to $1 billion of assets and low leverage.
And you know, we're very excited by the growth opportunities from axiom, we're hard at work developing and executing the three pillars of our strategy.
One of our differentiated global brand and channel to our panel technology and three of focused approach to the utility scale market.
Although we are only a few quarters old I'm encouraged by the recent progress and each of the pillars and how they are positioning us to growth.
Leveraging our brand channel and panels, we successfully introduced the first step of our beyond the panel strategy D. G.
Specifically the introduction of our Maxion AC modules with factory integrated micro Inverters and <unk>.
The products offer attractive and customer benefits, while streamlining the design and installation process for our installer partners.
Maxion and AC modules are now shipping in 17 European countries and Australia.
The initial feedback from customers and distributors has been positive and.
We plan to introduce AC versions of our performance line panels later this year.
This is the key initiative per maxion, driving significant margin uplift on an equivalent the megawatt sales basis.
It's also a testament to the strength of our trained channel partners and their ability to translate our significant technology differentiation into compelling customer benefits across the many markets we serve.
Early indications suggest that AC panel sales should make up as much as 10% of our DG sales outside of the U S and Q2 and.
And grow to over 20% by Q4.
AC modules of the first step and our beyond the panel strategy.
The strategy Leverages, our panels channel and brands to sell more complete systems to our customers, including the ability to add storage and certain markets.
Last week, we announced the leader for the separate Ralph Elias who will be joining our executive team after having a successful career and driving consumer solutions.
He was most recently the head of Samsung's Smart home Iot effort.
Ralph will be solidifying and executing our vision for how to build smarter energy services globally.
And welcome Ralph the team and look forward to his leadership and building and its exciting new business.
I'm confident that even a year from now with Ralph's leadership, the value of our brand and dealer channel will be even more well recognized by investors.
We've also made exciting progress and the technology pillar of our growth strategy.
We achieved key milestones and our Max seven development program spin.
Specifically, we achieved our target solar cell efficiency development milestone.
We are increasingly confident that our new cell architecture and maintain the three point of efficiency lead the wheat held for decades.
Secondly, perhaps as importantly.
We significantly beat our target with respect to sell reverse bias breakdown of critical parameter for limiting module hotspots when shaded.
In addition to being inherently safer than conventional panels, the ability of our Max seven and cell architecture to evenly distribute curt when shaded will allow us to simple team simplified module circuitry and utilize disruptive module packaging technology.
To hear more from us on the subject soon.
Let me now discuss Q1.
Starting with DG, our DG business is traditionally very seasonal.
The first half volumes of typically only 40% of annual total with the first quarter being the lowest.
With that and mind relatively speaking demand for both our IDC and performance product lines is healthy and all of our key DG markets.
That said like the rest of the market, we are seeing supply chain cost pressure across the board.
This is true for both of our RBC products and even more so from the performance series product sourced from our Hs PV joint venture.
And particular, the price of certain bond materials, such as solar cells glass and aluminum has increased markedly and the cost of logistics is also significantly higher than in previous quarters.
Although we expect the supply chain of returned to normal and the year, we are acting aggressively to mitigate these cost pressures.
We expect some immediate relief by raising prices on current products where possible.
For the second half of the year, we expect relief from two primary initiatives first we've accelerated the ramp of our Max six product and Malaysia.
This product is anticipated to ramp in Q3, and we will place our 10 year old Max too.
We expect Max six to command higher price premium at lower cost and higher resulting margins.
We anticipate this initiative will bring significant improvement and the second half of this calendar year.
Second we're streamlining our ABC supply chain and improving utilization of Malaysia, and moving production there for all modules destined for the EU and Asia.
The shift production away from our Mexicali plant freeing it up for a large scale initiative the Peter will describe in a moment.
The same initiative will also further utilize our Malaysia factory, bringing up the full utilization for the first time in its history.
Our factory optimization will continue during the year, we expect to emerge from 2021, where the more capital and cost efficient factory network.
For our performance line, our Hs PV JV has been impacted by exposure to fluctuations and the China supply chain, especially pricing from mono PERC cells, which have been traditionally outsourced.
And our Q3 earnings call, we discussed the impact of these cost challenges and our ability to serve the utility scale market outside of China.
But fortunately conditions did not improve and the first quarter and we now anticipate that elevated cost for solar cells glass and freight could persist into the second half of the year.
And response, we took quick action to decrease our exposure to the large scale of market.
Module pricing in most markets, it's still not compatible with elevated supply chain costs. Although we are starting to see a necessary the gradual increase in price expectations from customers.
Inside of China pricing and costs are more aligned and our hsp the joint venture can sell the performance line more profitably.
We therefore again released most of our performance line allocation of rights for large scale for the next few months.
We still do not expect and meaningfully ramp up our large scale sales until later this year.
As we've said in the past we have the flexibility to off take our performance line allocation when we can sell it profitably.
And can also be patient and allow the upstream supply chain to recover when necessary.
We continue to expand our global large scale sales pipeline, which now sits at over 38 Gigawatts.
We will begin to accelerate the conversion of that pipeline is the orders when the upstream supply chain returns more to normal.
Given the.
We are taking proactive steps to shore up some of the more systemic supply chain challenges, we see and the supply of cells.
We are working closely with the JV to pursue a plan for the manufacturing more of its own cells and to mitigate the exposure of currently has to sell supply costs.
We expect this capability to be in place by Q4 of this year.
And is intended to effectively leverage the technology advances of Tcs with its new GE 12 wafer format, the world's largest solar wafer and production.
We're also planning to take advantage of both internal and external developments to address the U S market with our performance line panels the.
The us market is the largest outside of China, and we're very well connected by virtue of our historical roots.
I'll now turn the call over to Peter to provide some detail on this exciting initiative.
Thanks, Jeff earlier today, we announced the significant new initiatives to scale up our engagement and the U S market.
There are three primary catalysts for this initiative.
First we expect accelerated growth and the U S market driven by the increasingly competitive cost of solar power and solid support for renewable energy deployment by the New administration.
The U S market is somewhat unique in terms of its supply chain requirements and as a result, asps are quite favorable compared with other global markets.
Secondly, the multi gigawatt ramp of maxion and advanced shingled cell technology and our.
Our China joint venture has validated the feasibility and the operational characteristics of this latest technology.
Finally, the ongoing realignment of our global manufacturing footprint, that's freed up space and our existing factories and enables a rapid copy exact deployment of shingled cell technology into match on the factories outside of China.
Now, let me dive a little deeper into the market structure on demand side of the equation.
As many of you know our exclusive supply agreement with Sunpower cover sales of our RBC products into the residential and light commercial channels business, but permits maxion to conduct direct sales into the U S large scale power plant segment.
Since spinning off from Sunpower, and we have been engaging with large scale customers and anticipation of being able to deliver cost effective performance line and panels and to the U S market.
The response has been positive and we currently have of large scale U S sales pipeline of over 18, gigawatts, including several late stage opportunities.
We expect to announce one of them more contracts and the near future and expand our U S sales force to continue our focus on the segment.
We will continue to work with Sunpower to address the DG market and expect with the addition of price competitive performance line products to their premium IDC product portfolio would enable broader market coverage and the.
<unk> core DG markets outside the U S performance line panels have become a significant part of our business, allowing our sales and installation partners to offer any better best product portfolio and increasing our share of account.
We would expect Sunpower and to see a similar effect and the U S. DG market. Following the introduction of performance line panels.
On the supply side, we intend to capitalize on the current realignment of our global factory footprint, which has freed up space and our Malaysian the cell fab three as well and is at our Mexicali Moscow.
We plan to utilize the space and fab three to install around one eight gigawatts of solar cell capacity.
And plan to install equivalent module capacity and Mexicali.
The production ramp is planned for early 2022 subject to obtaining the necessary funding.
By using proving manufacturing technology and existing factories with trained Workforces. We can quickly implement a single module supply chain appropriate for the U S market.
As we announced and our recent press release, we also plan to pursue the phase II expansion with the second Mod co located and the U S.
We'll begin the analysis of suitable sites and the U S immediately and assuming the availability of.
Availability of adequate manufacturing incentives and continued demand strength and <unk>.
We expect deployment of up to an additional one eight gigawatts of module capacity and the U S. Sometime in 2023.
Now I will turn the call over to Joanne to review our financial performance Joanne.
Thank you, Peter and Hello, everyone and I will discuss the drivers and details of our fourth quarter performance and provide some forward looking information as Jeff mentioned, we continued our recoveries from the Covid.
Overall revenue grew 19% sequentially.
We saw strong demand recovery and our DG business, where revenue was up 12% sequentially and comprised 68% of our total revenue.
We benefited from record shipments and our European DG channel with our success and selling both the ITC and performance line panels and the region.
Quarter on quarter revenue growth and our large scale business was up 35% primarily on projects and Asia.
Geographic revenue mix for Q4 was well balanced with approximately 30% from the Asia Pacific region, 30% from the Americas, and 40% from Europe and Middle East.
We saw significant sequential revenue growth in Europe, and North America, as well as the benefit of large scale projects and Asia.
Steady growth and Europe has made it our largest region and is a testament to the power of our brand channels and panels.
RBC product revenues increased 21% sequentially, driven by strong DG market demand and recovery from Covid.
The newest and highest margin product Max five grew nearly 60% sequentially and as a sign of the potential for that product as well as Max six and which will begin to ramp and the second half of 2021.
Performance line revenue growth on the large scale projects and Asia.
About 70% of IDC revenue and 60% of performance line revenue went into our DG business.
And total IDC products represented 69% of our revenue and 52% of megawatts.
Revenue per watt and of our IDC product line with stable versus the previous quarter at slightly under 60.
Performance line revenue per watt was stable at 25 cents.
Our differentiated technology supported our defense of our selling prices and the period.
By the end of 2021 will be and a much healthier and more profitable position with the RBC products family.
Max <unk> will be obsolete it.
The first appointment of Matt six will be and play.
And the upgrade of Max five to Max six will be well underway.
This will give us a healthy one gigawatt of total RBC capacity split evenly between our fast and Malaysia and the Philippines.
And all targeted to the premium DG market.
And this capacity will suffice until we bring and Max seven towards at the beginning of 2020 three.
Moving down the P&L. Our Q4 gross profit was $7 million are three percentage of revenues as a reminder, we.
We have of long term supply contracts of poly silicon prices significant significantly above prevailing market rates are.
And our Q4 results include losses of $21 million attributable to that contract without those losses gross profit would have been $28 million or 11%.
The sequential decline in gross margin reflected higher raw material costs and the impact of material shortages as.
As well as the product mix impact.
The increase and large scale product.
Operating expenses increased sequentially to $33 million and part due to the incremental costs related to the separation from sunpower.
For Q1, we're expecting operating expenses to increase to approximately $38 million, an incremental separation and consulting costs before returning to a run rate of about low to mid <unk> per quarter for the balance of the year.
Note that this expected opex level and creates cost savings from our G&A transition to Asia and.
And the investments of ramp of our global sales and our Asia R&D resources.
Our Q4 EBITDA adjusted solely for stock based compensation was the profit of $27 million.
As described in our earnings release, our adjusted EBITDA increase of $44 million benefit of of re measurement gain on the stock borrowing facilities.
Starting with our Green convertible notes.
Adjusted EBITDA was adversely impacted by $21 million of losses associated with the above market poly silicon contract.
Now, let us turn to liquidity and capital investment.
We ended the quarter with $207 million of cash after making payments under the long term poly silicon contract the <unk>.
Final installment of $30 million to AUO relates to.
Our acquisition of their legacy interest and our Malaysia factory and $14 million of capital investment.
Our preliminary Q1 cash balance as of $130 million, reflecting approximately $10 million for capital investment.
$18 million and interest and vendor financing payments and the seasonal working capital adjustment.
For the full year 2020, one we are planning capital investments of approximately $90 million principally from Max six manufacturing lines factory optimization and.
The R&D from Max seven.
We will increase capital investment to a total of approximately $170 million. Once we secure funding for previously mentioned the expansion of performance line manufacturing to serve the U S market.
We are expecting strong returns of the planned incremental investments and.
We will optimize our existing factory footprint, and we expect to benefit from increasing our exposure to the growing and profitable U S EG and large scale market.
Finally, let me discuss our expectations for the first quarter of 2020 one.
Before I get to the numbers I'd like to provide some context.
This discussion and incorporate the sequential decline and D. G revenue largely consistent with historical seasonal patterns.
The sequential decline and large scale of buying and its more pronounced as Jeff discussed.
Furthermore, higher material and solar salt costs as well as logistics costs are impacting profitability.
Our preliminary Q1 results have megawatts of about 375 or of 43% sequential decline and revenues of about $160 million or of 35% sequential decline.
These preliminary numbers are subject to change as we continue the closing process.
GAAP gross profit is expected to be of loss of five two of loss of $15 million. This includes expected out of market poly silicon and loss of $15 million.
And finally, some smaller items.
The support modeling the expected Q1 results and.
Taxes, and depreciation should approximate $19 million and stock based compensation should approximate $1 million. Please.
Please keep in mind that our adjusted EBITDA is also expected to be impacted by and $8 million benefit for the mark to market adjustment associated with the stock borrowing facilities.
Now I'll turn the call back to Jeff to summarize before we go to Q&A Jeff.
Thanks Joanne.
As I mentioned earlier, there are three core pillars of maxion and that should have investors excited about our growth potential.
First our unique and globally trusted DG brand and sales channels.
And our decades long panel technology leadership, and third our ability to address the utility scale market with the value driven focus.
We anticipate that these core pillars will result in us building profitable growth and three ways.
Profitable growth as we sell more than just panels with our brand and channels.
Profitable growth as we introduce disruptive new panel technology that will expand margins and markets.
And profitable growth as we address the U S market holistically with the focus and differentiation and you'd expect from of U S listed company.
This confidence is reflected in our long term financial targets to which we remain committed.
Over the next few years, we expect to get to a run rate operating model and over 20% annual revenue growth over 15% gross margin and over 12% EBITDA margin.
As a company we are only a few quarters old we have plenty of work to do but we of the right team and assets to make it happen.
We look forward to you taking the journey with us.
Now, let's go to the Q&A session. Operator. Please proceed.
Thank you to ask a question you will need to press star one on your telephone and again that is star one and your touch tone telephone to ask a question to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Yeah.
Our first question comes from the line of Brian Lee of Goldman Sachs. Your line is open.
<unk> thanks for taking the question.
I appreciate all of the disclosure here and the preliminary Q1 guide as well.
Wanted to clarify Joanne and it sounded like we should be thinking about the DG volume is being down commensurate with typical seasonality of that that implies a down like 15% to 20% from Q4 to Q1, and that's typically what we see or would it be any different for you guys.
Yeah.
Our seasonal decline.
I think thats Directionally, correct, maybe a little bit higher.
Okay Fair enough that's super helpful and then.
Just wanted to dig into the the <unk>.
Spanned and Sunpower and relationship a little bit I know.
They've been exclusive with you on the ABC, it's expanding to the P series P series for it.
It sounds like.
And the dental correct me, if I'm wrong I don't know if that extends to the commercial as well, but can you.
And maybe elaborate a little bit around the.
The P series and how it positions competitively versus other products and the market for U S D.
The IBP carry the nice premium and capture of that segment of the market pretty well, but just wondering how P series and sort of fits into the mix here.
Yeah sure Brian and thanks for the question this is Jeff.
So one of the things that we've seen over the course of the last two plus years overseas so outside of the U S.
As per our dealer channel partners and BG and that includes both resi and commercial.
Having the debt complementary portfolio, having the ABC products to capture the the higher end of the premium market. But then also having the performance series product to go along with with IDC, but the builder to attack more of the market.
The able to go after maybe the consumers that are more concerned about short term returns other payrolls and and potentially are less the.
Caring about.
The warranties that we have and all of the other benefits of our premium panel of brain.
It's really helpful to be able to serve both of those customers.
And what we've actually seen overseas and we expect we would expect and probably a similar similar dynamic with Sunpower is overseas and we see our channel partners. Historically, they would go into the IDC, but then if the customer was saying that they needed a cheaper panel. They would then have to go to one of our competitors now by having the performance line along.
And with IDC, you've now got the ability to keep it all in house within within the Maxion family and what Youll see as channel partners and some cases, depending on the customer they'll go in with the kind of the better panel, which is the performance serious or they'll start with the best panel, but potentially start with the bathroom do of down sell to the better.
P series or they will start with the P series and do the upsell to IDC.
So we think for Sunpower and the U S. It's going to give them the.
The similar capability and dynamic and not something that they're excited about and.
It's going to allow them I think the build to capture a bigger footprint with their dealer channel partners much like we experienced were overseas.
Awesome debt, that's Super helpful. Paul and I appreciate that Jeff and then maybe last one from me I'll pass it on is on the debt.
And the gross margins year on a GAAP basis.
You're guiding to negative gross margins for Q1 talking about cost pressures being elevated probably into the second half so and easy.
The fair to assume that we're going to stay fairly negative or close to negative.
The gross margin levels.
And in the first half before maybe we see some recovery in the back half of that kind of the cadence or is there going to be of faster snapback.
And then of that here.
Yeah, I don't know that I'll speak as directly to the gross margin side of the maybe maybe cover some of the dynamics and then certainly Joanne if you want to follow up with any additional color.
And I think as we look at the supply chain.
And as you've heard the of course, it's being widely communicated and from all the players in the industry of the supply chain costs were up significantly.
And.
What we're seeing is and just give you some color of glass, we're seeing and Q2 some recovery.
Glass prices were to ex what they were before from maybe 150% of what they were.
And here with what we're seeing and Q2, so we're starting to see some recovery of the class and that's really coming as there's more capacity is coming online, but also some of the demand is dropping within China.
With logistics will also see the.
The drop in the horizon and in particular and Q3, we're expecting some sort of recovery there.
And it will still be higher we're seeing pretty COVID-19, but because of all of the same dynamics, but.
But we're starting to see those come back.
The two that I think of a little bit tougher to gauge our silver and aluminum and also poly silicon, where it's kind of still to be determined and even with glass and what's the just the how quickly. They snap back I think it is still something that our supply chain teams are monitoring and talking about the supply chain partners on a on a daily basis, So probably two.
Too early to handicap that.
But certainly for Q1, it's as as Joanne described and the <unk>.
Prepared comments.
Yeah, I think the only thing I would add is as Jeff mentioned.
Our year is very seasonal with the second half being especially strong and I think that the play with the margins as well.
And so we expect and we certainly expect margin improvement just on seasonality.
And as just mentioned.
Watching the supply chain very closely.
Q2 is kind of of that transition quarter.
If things start to improve and the supply chain and you'll start to see improvement of key channel, but the strength is expected in Q3 Q4 with the the strong seasonal and results.
Alright, Thanks, a lot and I'll pass it on.
Thank you. Thank you. Our next question comes from the line of Pavel <unk> of Raymond James Your question. Please.
Hey, Thanks for taking the question three months ago, you talked about.
Volume in the first half of 'twenty, one being disproportionately going into the Chinese market, which of course is not consolidated and in your financials.
Is that still the.
Eight.
Yes.
And that is still the case so for the first half of the dynamics. We're seeing we're still going to have the vast majority of that JV volume for utility scale will be going into the China market and now for D. G. We're going to continue to see the growth for the the offtake there with.
As the volume and demand growth of P. G does seasonally from Q1 to Q2 and into the second half.
But yeah were expected that for Q1, and Q2 I would say Q3.
We're going to see that bleed into Q3, and it but I think and Q3 Q4, and where we're going to start to see that transition as we look now and business. That's in Q4.
But we're starting to bid on and also and even some in Q3, but then I would say even more so as we get into early 'twenty two.
There is starting to be more of an equilibrium between price and your expectations from the market and where the <unk>.
Why chain costs are so we see the recovery on the horizon, how quickly and it happens within 2021 I think it is still something that we're monitoring closely.
Okay.
Yes.
When you talk about the U S market, having I think you said special attributes or special features visa.
These are the better pricing is that.
Comment on the tariff protection. That's currently in place section two center of one and three the Irwin.
And certainly that's an element of it and.
It does make it a unique market in that regard I would say, though that a lot of the customers within the U S and that's true of some other territories as well.
One of the the compelling dot and bits of value of that we bring as being of U S publicly listed company.
I think does make us a little bit different from many others that supply into the market and I think there are a lot of attribute to the come along by virtue of that would make us appealing.
To the marketplace as well so.
Given our history there we see it is of very attractive market force and it's one of the reasons why we're so bullish on the U S. Both both of the DG and the expanded growth with Sunpower, but also.
On the utility scale side.
Okay last question from me this is I.
I have to touch on the Covid dynamic.
All of Luzon, Philippines, right now is even locked down and because of record.
Pace of infections, and the Philippines, how does that affect your work force your operations of your presence there.
Yes. Thanks. Thank you for the question because all we.
I've been very proud of the of the work that all of our operations teams have done across our global factories and.
And I can tell you that even through today, we have not had a single transmission of COVID-19 within any of our factories and that really comes true through good tight screening of all employees coming in social distancing and it's been hard wired and the factories and every every square inch of the factory.
And I think with that because of the great track record that we have across all of our factories the.
We have been able to keep open and keep running and I would say endured a number of searches.
You can think about some of the surgeons that have happened even most recently with the Malaysia.
There was another surge of Covid and down in Mexico, and certainly there was a big peak.
But we've been able to to create a very safe working environment for our employees and the governments recognize that so we've really seen little disruption where more of the disruption has happened is around the supply chain side as we've discussed.
Getting.
Getting <unk>.
Containers into the Port of long Beach, and California, as an example logistics costs, that's really where you see more of the disruption, but our factories are cranking.
Good day.
And thank you guys.
Thank you for them.
Thank you again to ask the question. Please press star wanting the Touchtone telephone and again Thats Star one on your.
The test on telephone to ask the question on.
The next question comes from the line of.
And the Sen of Roth Capital Partners. Your question. Please.
Hey, guys. Thanks for taking my questions I had some technical difficulties earlier. So I may have missed some of the earlier call. So I apologize if I am asking the question and that's already been asked.
That said first of all and P series.
I was wondering if you could give us a sense for.
How much of your allocation.
And you expect to take in Q1, and two and maybe also of what you actually took the Q4 I know the commentary earlier, you talked about and not really ramping things up until the back half.
And with your D G and and is it fair to say that Youre, taking the zero utility scale P series was wondering if you could just quantify that and anyway.
And typically out of that 60% of your.
Able to get 67%.
Are you.
And what percentage of that number I guess, we can calculate for Q4.
But for Q1 and two do we see similar levels and then and then do you think you'll take your full allocation and back out. Thanks.
Okay. Let me, let me answer of the front end of that and then Joanne maybe you can address some of the more specifics on the numbers.
So it's the first of all of the things that we really like about our.
And our strategy within the utility scale side of things and with the JV and general is that we do have the access to the optic upwards the 67%.
And have to take and so theres no take or pay element to this so we can pick and choose the kind of business that we want.
And I would say as we look at it we believe that as we get into back half so as the supply chain costs coming out of China, starting to get more in sync with rest of world pricing.
That's when we think there is upside for us to need to take the full allocation, but I would say until then it's going to be predominantly coming out of our DG sales, which I'm sure Joe and I'll touch on here and the second one.
And you'll start to see as the market starts to get back to normal again, right typically supply chain costs are going down and the rest of world market as the more attractive version or the more of the more attractive market for utility scale.
And that gets back in the year, then you'll see us taking more toward our uptick.
But joanne maybe you can fill in more color there.
Yeah.
Of course.
The listeners to our supplemental information we get inquiries.
Data as it relates to performance series.
In total for Q4.
P series revenue was $77 million.
And our P series megawatts.
312.
And.
To give you a flavor about half of that went into it to D. G.
A little bit more than half on a revenue basis and then.
And then the balance of plant into the into the large scale.
Great. Thank you both on that and as a follow up.
Do you should we expect a similar level of megawatts.
And Q1 and two of this year.
And then have that ramp up nicely and the back half of it assuming the costs come down.
Yeah.
Yeah, I think it's.
That's right I think it's the.
And as it relates to D G and it'll it'll follow a normal seasonal pattern, we're seeing true.
Tremendous uptake in <unk>.
Europe for performance series panels.
So we do see good things from the DG side.
Large scale is lumpier and it's gonna be based off of when we signed the contracts, which as you know.
And I you know, we're not expecting much and the way of large scale contracts here in Q1 and Q2 based on what we've already signed.
And so maybe from what.
I'd add to that for just a little bit more colors, especially when you look at the results and the supplemental material, we do break it down by the different regions.
And as you'll see we are seeing continued great growth, especially within DG and all.
And what you too to you.
Europe and EMEA in particular, where.
Every quarter, even as we went through Covid and we just keep adding volume and volume and that's the combination of debt that playbook of IDC from the high end of the premium market and the performance series and the kind of the more mainstream premium market.
We expect that to continue and and what the beauty of it misses I think what gets me excited as I think about the progress that we're going to make over 2021.
The percentage of the AC modules that we shipped and then you talked about and the prepared materials of our AC modules are going to grow as a percentage of revenue outside of the U S.
Pretty significantly over the course of 'twenty one.
We're also then going to be.
And a lot of good work with factory utilization as Peter touched on with some of the work that we're doing with bringing on the the product from the U S. With T series. That's also going to of a halo effect on the factory costs, which will help us with gross margins as we get to the the latter half of the year and then we've also got the revitalization of the IPC portfolio, where we're effectively.
Ramping down and Obsoleting, a 12 year old product and next two which were effectively selling of cost today and we'll look.
Placing it with Max six along with Max five at margins that are dramatically higher and so we're going to leave 2021, and a really good spot work to do between now and then but it's coming along nicely.
Okay alright. Thanks.
In terms of shifting gears here in terms of the.
Expansion of <unk>.
The press released.
Can you talk about or you can give us some more color on your financing strategy for.
For the U S expansion.
And you know what might the.
And I was just just give us some color in terms of timing and and.
And the magnitude of what the equity investment might be.
And so I can give I can give you a little bit of color. We're obviously very excited about servicing the U S. Large scale market and we wanted to take that one would want to start buying that equipment and get it into the factories and as soon as possible. So.
And so we can hit our goals for 2000 and trying to you.
And we've got we've had conversations with the world bankers.
We are considering both the debt and equity.
And I will it's.
Premature to announce what our exact finance and strategy is.
We're range several things, including what is their existing capital structure look like and what do we want it to look like going forward.
And to make sure we have a.
Our flexible agile capital structure.
Okay, great. Thanks, Sean and then one last one from me.
And I know you guys.
You talked about margins, a little bit already and.
And we're kind of done with Q1 and effectively.
No no we're kind of in Q2.
Would you expect and I know you haven't given guidance officially for Q2.
From a seasonality standpoint, you know the there could be that bump up and D. G. But it seems like the W series.
And the scale.
Probably the largely flat and so would it be fair to say you know barring the the D G and kind of bump up and seasonality from a margin standpoint, and where we're probably in a similar spot and Q2 versus Q1 and then.
And you will see that little touch up there.
I just wanted to see if you might be able provide a little bit more color on the modeling for Q2, and and if you feel comfortable giving some color and Q3.
Would be fantastic.
Thanks.
Yes, there is and I'll give a little bit of color and Joanna if you want to fill and more please do but I would say as Joe touched on earlier.
Because of the seasonality with Q1 always critically our worst quarter, you would expect that you would see some movement and the positive direction as we go throughout the year and certainly that has.
It will effect on the margin side, I think especially as we get towards the end of the year and Youll see some more of even beyond the seasonality youll see things like the AC panels and the the ramp up of Max six and.
The continued growth and BG, adding more of the margins.
And what you want to add more color Bill and I just said.
I think that's fair.
It's the.
And as Jeff mentioned in his prepared remarks.
And we're about a 40 60 split from seasonality. So a lot of the strength will be and and the second half.
And with the key to being more of the transition and between the.
Our low quarter in Q1.
Okay. Thanks, guys I'll pass it on.
Thank you Phil.
Thank you again to ask a question. Please press star one on your Touchtone telephone and again Thats Star one and your touch tone telephone to ask the question.
Our next question comes from the line of Marshall Carver of Heikkinen.
Heikkinen Energy your line is open.
Yes, and thank you for taking my questions.
So you are increasing capex by $80 million. This year does that incorporate the entirety of your.
Capex for the expansion of where the there'll be some spillover into 2022.
And so there'll be some spillover into the into 2020 two.
The investment and the performance series side, you know it.
And we would certainly have to build up from working capital as well.
And in 2022, but the bulk of the capital investment will be and in 2020 one.
Okay.
Along those lines, if you elect to do the additional expansion and the U S.
How much more expensive or would it be of similar cost.
And to build facilities here in the U S.
And the appeal heater ash and Brenner, Yeah sure. Thanks Marshall.
The Peter Ash umbrella and we want to provide any color on that Peter has been taking the lead with a lot of our work on the product for the U S.
Sure.
I think that the the capex the cost of the tools and installation.
With the marginally more expensive and the U S, but not meaningfully so.
The the.
Tools from all of the automation is similar to what we would be putting in the but we won't be putting and mexicali.
Not a tremendous difference in terms of the the Capex cost.
Alright, Thank you and.
In terms of your <unk> Opex is that of good.
Quarterly run rate to use or or would that scale up.
As you increase volumes and the second half of the year.
So, let's say the restroom and Joanne you can.
Let me give directional and enjoy and you can speak of the specifics the way you should think about our opex as we have transitioned since the spinoff from being from a G&A perspective, as being very U S centric and.
We have and will have completed that by the end of Q1 that transition of the G&A from the U S over to Asia, So youre going to see our G&A as a percentage go down.
We are investing from an opex perspective, though into sales and R&D and sales just because of the the mammoth opportunity that we feel we have out there.
Our sales people working with channel partners and front of customers. So that will lead the great growth and the other is on the R&D side, we are investing and.
In particular into our Asia R&D that will work very symbiotically with our Silicon Valley R&D and the thought there is that that's going to help us get.
New product, new technology to ramp and the scale into revenue more quickly than it has historically so so we're excited about both of those investments. The Joanne can give you the exact color on the numbers up.
Yeah, and you could give you a flavor of Q1 is the is definitely a spike.
There are some onetime costs relating to consulting recruiting costs.
And and then the transition costs.
As it relates to the separation from from Sunpower.
So we do see the things tapering down.
And and Kiki Q3, Q4, and then we expect a more normalized run rate.
And.
And of the low to mid 30 millions.
And you know think of something around 30, 30, and I am the.
And the range.
And as Jeff mentioned.
You know, we would have expected to see of ramp down of the Opex as we migrated the Asia, but that's also being the ramped.
Ramped back up to the $33 million level as we invest in R&D and sales.
And then just as you model forward sales will grow faster than R&D.
Alright, thank you so much.
Great. Thank you.
Thank you. Our next question comes from Ben Carlo of Baird. Your line is open.
Everyone and good afternoon and good evening.
I was just wondering.
The supply chain.
And if it's coming up and your talks with customers.
Customers are demanding more.
Disability of Rogers supply chain.
Yes.
You have.
Parts of your supply chain and Western charter and then if so maybe could you distinguish between your residential customers and commercial customers and utility customers.
Thank you.
Yes.
With all of our customers and this is the historically as well as current there is always the debt.
Question around our supply chain and and I think one of the reasons, where we are of such a great brand and our reputation.
Is that they know there and working with us.
And again this goes back to even to be of U S list the company that the.
They can count on us doing the right thing.
In terms of working with our supply chain.
And I say and you've had some questions come up but I think largely we have.
Given the confidence that we have.
And our and our supply chain and and.
And that it works and the very ethical and.
Behaves very ethically.
I would say, we don't get concerns from our customers because of the business and thats true across residential and light commercial heavy commercial and and all the way for utility scale.
Greg could you just talk maybe a little bit more on your pipeline.
And the others.
The big boost and it just kind of give us more detail and deal whats driving the pipeline and that's it from me thanks guys.
Sure I'll speak a little bit of first and Peter maybe you can you can come and with some more color. So.
I'd say in general the the pipeline for rest of World is very robust of us even outside of outside of the U S.
And again I think as we look at getting a little more normalizing between more of supply chain costs are in China, and where the pricing expectations of our overseas you'll start to see you'll start to see us be able to fill more of that pipeline and turn it into bookings.
Bookings and contracts until the U S side, we've seen we've seen the same and I think as we've started to go out and and speak with some customers about our intentions.
We've seen a good flow of opportunity that has us really bullish about the investment there.
Peter If you would mind you can add a little more color.
Sure I think.
Really we saw acceleration and the growth of our pipeline starting.
Q3 last year, just after we formally introduced our PS five latest shingled panel I'm talking about the large scale utility and power plant second here.
And the product was very well received I think it's perceived as being a really competitive high performance product.
And since then our rest of world pipeline has grown steadily.
The around 20 Gigawatts currently.
As Jeff said, we're we're kind of holding back so we have visibility into all of these projects.
We're working with our customers on timing, but we've held back.
Converting a lot of that into sales until we have better visibility on the.
On the supply chain costs, one of the things that our customers.
Like about dealing with maxion is the debt there.
They believe correctly that we're going to follow through on commitments we make.
When we signed purchase orders.
I think the more surprising growth has been.
In the U S and.
And a significantly shorter period of time.
Two quarters and a little bit more.
Without really aggressive outbound.
Sales efforts, we've seen our pipeline good and Jean Gigawatts.
And so.
The value proposition that we're bringing to the market and the U S between the product characteristics.
The.
And the supply chain that we have and place the credibility of Max and as the supplier.
And I think.
Interest and our ability to to deliver a kind of a known and clean and supply chain all of that appears to be working quite well in terms of sales of interest and so we've seen extremely rapid growth.
Both in terms of early stage of opportunities and continuing to convert those into later stage of opportunities in the U S.
Great. Thank you Peter.
Okay.
Thank you once again to ask a question. Please press star one on your Touchtone telephone and again Thats Star one on your Touchtone telephone task of the question.
And there are no further questions. We will now conclude the call. Thank you all again.
You may now disconnect.
Okay.
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Yes.
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