Q1 2021 Maxeon Solar Technologies Ltd Earnings Call
Okay.
Good day, ladies and gentlemen, welcome to the Maxion solar technologies first quarter 'twenty 'twenty 1 earnings call. Currently all participants are in a listen only mode.
We will conduct the question and answer session and instructions will follow at that time zone.
Remainder of this conference call is being recorded I would now like to turn the conference over to our host Mr. Gary The vortex of the Blue shirt group, Sir you may begin.
Thank you operator, good day, everyone and welcome to Mac Jones first quarter 2021 earnings conference call with US today are Chief Executive Officer, Jeff Waters, Chief Strategy Officer, Peter asked from Brenner, and Chief Financial Officer 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 Maxion the 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 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 Investor Relations website.
Finally, we want to point out that the comparisons to the first quarter of 2020 reflect a carve out of magazine and the results. While it was still part of the Sunpower last year, we began operating as an independent company on August 27, and with that let me turn the call over to Maxion CEO, Jeff waters, Jeff.
Thank you Gary and good day, everyone I'll start by giving a business overview and cover of recent accomplishments I will then review our financial performance and outlook and we will conclude the Q&A.
On our last earnings call I explained our 3 pillars of profitable growth. These are our leading panel technology, our unique focused approach to the utility scale business and our strong global brand and 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.
2 days ago, we unveiled maxion error of novel Ultra thin ultra light and flexible panel technology could eliminate the glass of aluminum framing.
This innovation is disruptive in many dimensions.
The nearly half the weight of conventional panels maxion air will enable solar deployment of low load commercial rooftops that are non engineered to accept the weight of the conventional panel.
We estimate this unserved market to be over 4 gigawatt, just within Europe alone.
Using a strong factory applied polymer backing these peel-and-stick panels are easy to install and are therefore expected to measurably reduce installation time and cost.
You can learn more on the maxion website.
In addition to low load commercial applications, we plan to extend maxion Erik the other markets such as residential rooftops and large scale floating power plants in the future.
We believe the competitive moat around maxion area of substantial and that this form factor will not be easily replicated by our competitors because it's predicated on the unique capabilities of our proprietary RBC cell technology.
In addition to superior efficiency low power of degradation in leading reliability and durability.
Maxine on ABC solar cells also have the unique ability to share of current and reverse bias, while shaded, thus avoiding damaging or dangerously high temperatures.
This feature is particularly important where panels are adhered directly to the rooftop.
I B C cells also have superior corrosion resistance and the ability to Ben without harmful cracking.
This features particularly the importance to the maxion air platform with its lightweight and Bendable non glass super strength.
<unk> unique <unk> technology is therefore, a key enabler for this new product platform.
Let me shift gears to another key pillar of our strategy, namely our large scale business and specifically our U S market performance line initiative.
As you know we announced this planned expansion in early April and we have already made meaningful progress.
Earlier today, we announced the definitive agreement to supply close to 1 gigawatt of performance line panels. The primary <unk> Gemini project shipped.
Shipments will take place over a 4 quarter period, starting in the second quarter of 2022.
We're pleased to have been chosen as the module supplier for the Gemini projected a gigawatt scale solar plus storage of project located in southern Nevada.
We believe it will be 1 of the largest solar power systems in the U S. When installed.
This order covers a large fraction of the expected first year output of our new in house performance line capacity.
In our opinion this wind confirms the value of maxion product offering in the U S market.
Our primary focus in the U S is now on converting our substantial large scale sales pipeline into additional bookings for delivery in 2023 and beyond.
Moving to the final pillar of our global brand and DG channels. We saw continued progress in the first step of our beyond the panel strategy, namely our recently introduced the AC modules.
Maxion AC modules are currently available in Europe, the U S in Australia the.
<unk> is strong and we're not experiencing any significant micro inverter shortages.
Despite recent Covid lockdowns in several European countries, we continue to expect that AC modules will grow to over 20% of our day sales outside of the U S. As we exit 2021.
The value of factory integrated AC modules combined with our knowledgeable channel partners is compelling for customers.
Given that we're expanding our AC module portfolio to also include the performance line version the.
The initial shipments of planned for this summer.
Okay.
More broadly on the back of our industry, leading panels branded channel. We saw record Q1 bookings for DG globally I'd like to specifically highlight the European region, where we saw record DG shipments for the first quarter.
25% year on year, and up 84% versus Q1 of 2019.
We also saw continued strong growth from our marketing partner of the U S. Sunpower.
While the G is strong we still face challenges in our large scale business outside of the U S.
Despite of large and growing pipeline outside of the use of China, We're still proceeding cautiously and finalizing finalizing orders as we wait for clarity on evolving industry supply chain costs.
We expect increasing visibility as we move into the second half of the year, but for now we're still of leasing most of our near term large scale performance of mine allocation to our hsp the JV per sale in China.
That said our confidence remains high for maxion, its long term prospects of large scale.
We're taking action to adjust the near term realities of disruptive cost pressures in the industry supply chain with shipments this year in our large scale business are unlikely to match our expectations coming out of the spin last summer.
However, with our global reputation as a trusted supplier and with our innovative technology. We're confident we will achieve strong traction in global markets once the upstream supply chain normalizes.
Cost reduction remains Paramount and we are redoubling, our efforts to reduce costs and optimize our manufacturing footprint.
As we phase out of our legacy Maxion to technology, our European and Asian, Monaco's supporting outline will be repurposed or otherwise rationalized.
We believe our Malaysia cell factory loading will improve substantially as we ramp of the U S performance line program.
And we expect the operating expenses to decline sequentially. Once we roll off the lingering sunpower separation expenses later this year.
I will discuss our cost optimization efforts in more detail shortly.
As we look into 2022 and beyond we're very enthusiastic.
As we execute over the next 12 months at this time next year, we expect that we'll have robust growth of Maxion Air Maxion 6 an increased percentage of sales driven by AC modules and of pilot line in production from Maxion zone.
For large scale the performance line will be shipping into the U S and of client and upon supply chain normalization or non U S business will be able to attract to the kind of demand growth, we expect that it spend.
As well our factory footprint and operating costs will be further optimized and positive operating leverage will have started taking hold.
And last but not least we will have the completion of our out of market poly contract in near site.
This vision of what maxion can be just 1 year out is energizing for the maxion team.
Now I'll turn the call over to our new CFO of <unk>. He met Kai briefly on our last earnings call. When he had just started the.
The transition is complete and Kai is now running our finance function.
We're excited to have a CFO of <unk> caliber with us and are impressed with his early contributions over the past few months Cai, Let me turn the call over to you.
Thank you, Jeff and Hello, everyone.
I appreciate the kind words I.
I am excited to be part of this team of highly passionate and talented people who are driven by maxion submission 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.
Like to discuss the few changes that we are making to the presentation of all of them.
We want to provide a more consistent and meaningful pick Charles <unk> operational performance to our investors.
Forest starting now.
We will report adjusted EBITDA, excluding the mark to market share value of Remeasurement of our prepaid fall, but and physical delivery of forward.
This remeasurement gain or loss on those instruments would be excluded because it is not considered part of all core operating activities.
Nor do these gains or losses contribute to a meaningful evaluation of all current or.
For our 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 EBITDA. So this change compliments that practice.
Adjusted EBITDA non-GAAP gross profit and non-GAAP operating expenses of how we evaluate operating performance internally.
We believe that consistently presenting these measures where the age your understanding of all of 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 all financial results.
I will discuss the drivers and details of all first quarter performance and then provide guidance.
As expected Q1 results tracked the outlook, we offered about 6 weeks ago.
The team at Maxion execute the dwell 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.
The 33% sequential revenue decline reflected the expected seasonality and D G and the pause in large scale.
In addition note that the fourth quarter of fiscal 2020 was a 14 week quarter why Q1 of 2021 was the regular soybean weak volume.
The 28% decline in revenue versus last years Q1 is mostly out of the resides of the large scaled calls.
The revenue declines both sequentially and year over year track shipments, but were offset in Q1 by higher asps versus the prior quarter.
Overall, ASP was up 16% sequentially.
By product line IDC revenue per watt increased to 53 cents from 49% sequentially why performance line revenue per watt increased to 28 cents versus 25.
The sequential increase in overall ASP resides at from a combination of factors.
Our mix shift to a higher share of IPCC, it's driven by D. G as well as favorable euro versus U S. Dollar exchange rate and some price increases as we passed on higher supply chain costs where possible.
Now, let me take a moment to cover of the revenue breakouts, which are shown in the supplemental slides.
By end market D. G dominated the shipment and revenue mix not surprising with the pause in large scale.
Large scale made up only 16% of quarterly revenues down from 32% in the previous quarter.
Similarly, byproduct I B C increased in the mix since itself mostly into D. G.
Performance line was down substantially due to the large scale of pause with most remaining sales going into D. G.
Finally by geography, the sequential 13% decline of sales into Europe was driven by a 30% decline in large scale, but supported by D. G sales that were almost flat.
Underlining our strength in this very attractive market.
The Asia Pacific sales decreased by 64% sequentially due to the completion of some large power plant projects and lower demand in Japan D. G. Due to a resurgence of COVID-19.
Gross profit was slightly better than forecast.
Non-GAAP gross profit was $1.3 million of 0.8% of sales of sequential decline versus a 3.1% in the previous quarter.
The gross margin decline was due to lower volumes and higher supply chain costs that are starting to flow through all of them P. M L.
This was partially offset by higher asps and better product mix as we pause large scale sales.
First quarter gross profit includes the $13.3 million dollar loss from the out of market poly contract, which is about 8% of revenue.
We estimate that raw materials and logistics cost increases.
The increase as compared to the first quarter of 2020 adversely impacted all first quarter 2021 gross margin by 5 percentage points.
GAAP operating expenses were $37.2 million slightly lower than our guidance of approximately $38 million.
Non-GAAP operating expenses were $35.1 billion.
The sequential increase was a function of lingering expenses associated with the separation of from Sunpower.
We are tightly controlling our opex, while still investing in R&D and sales and marketing to support the exciting initiatives Jeff discussed.
As we put the spinoff expenses behind us our predominantly Asia based cost structure will become apparent.
Therefore, we expect quarterly non-GAAP opex to be below the Q1 levels for the remainder of the year.
Yes.
Net loss attributable to stockholders was $38.8 million.
Adjusted EBITDA was a loss of $25.7 million compared with the loss of $17 million in the previous quarter.
The larger loss was mainly attributable to the lower gross profit and higher opex versus Q4.
Adjusted EBITDA excludes stock based compensation restructuring charges and the gain of $8.4 million for the Mark to market re measurement of our prepaid forward.
Recall that adjusted EBITDA includes the $13.3 million dollar loss from the out of market poly contract.
Now, let us turn to liquidity and capital investment.
We ended the quarter with $131 million in cash.
Net cash used in operating activities was $58 million.
Driven by the net loss of seasonal working capital adjustment and partially offset by some noncash items included in the net loss.
Capex for the quarter was $11 million, mainly spent on 2 items.
First equipment in the Malaysia factory to upgrade production from axiom to to make some price in 6 and second on R&D and pilot line for the New Mexico 7 technology.
In April.
Paul.
We raised $179 million through the sale of ordinary shares that will primarily from growth initiatives.
We now expect Capex of $117 million in 2021.
In addition to our planned investments I just covered we will purchase machinery and equipment for performance line capacity to serve the the U S market.
We anticipate attractive return on the performance line of investments. They are intended to optimize our existing factory footprint and increase our exposure to the growing and profitable U S. D G and large scale markets.
Now, let me discuss our expectations for the second quarter of 2021.
A table summarizing our outlook is in the earnings release and supplemental slides.
We expect shipments in a range of 415 to 475 megawatt and revenue in a range of $165 million to $185 million.
As we mentioned in all of the last call because of D. G seasonality, we expect first half revenue to represent about 40% of the total for the year.
And our large scale business the pricing dynamic naturally plays out over a longer timeframe due to the lengthy project cycle times.
The sustained supply chain cost pressure in China is causing customers to gradually accept higher prices there.
This should enable us to begin converting all of pipeline into from bookings in the second half of this year and is expected to lead to a resumption of large scanner sales.
Early 2022.
Gross profit is expected to be of loss of 5 million to $15 million.
This includes out of market polysilicon cost in the range between 16 million to $19 million.
This expected sequential decrease in profitability is attributable to higher raw materials and freight costs from previous quarters set of flowing through the income statement.
We expect GAAP operating expenses of $38 million, plus or minus $2 million.
And non-GAAP operating expenses at the $31 million plus or minus $2 million.
We are in the process of closing all of module factory in Toulouse, France, and expect to incur restructuring charges of $5 million to $6 million in the second quarter, which are included in our guidance for GAAP operating expenses.
The closure is expected to reduce fixed costs by about $1 million per quarter. The vast majority of which is cash.
To complete the financial projections adjusted of Beta for Q2 is expected to win the range of the loss of $30 million to $40 million.
In conclusion the team at Maxion is focused on creating value and delivering profitable growth.
The new initiatives with open market opportunities to fuel growth, while we simultaneously reduce costs and optimize working capital.
These initiatives are designed to positively affect both top and bottom line performance. Furthermore, we look forward to the conclusion of the out of market polysilicon contract in December of 2022.
This has been an ongoing drag to profitability to the tune of more than $80 million per year as well as on our cash flows.
With that I'll turn the call back to Jeff to summarize before we go to Q1 day.
Yes.
Thanks Scott.
We have great confidence in a growing and increasingly profitable maxion.
This confidence is predicated on 3 unique pillars of growth each of which has the ability to transform us.
Over our first few quarters of the company Youre 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're seeing us extend that capability with both maxion 6 the world's highest efficiency panel available on the market and with Maxion are the disruptive solar technology. It has the potential to change the way of the world employ solar.
Yeah.
And with our focused approach to the large scale business Youre seeing is quickly established traction of in U S market because of who we are of the company.
Of the performance quality and reliability of that comes with that.
And the same attributes also set us up well for a successful returned of 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.
You're also seeing us make progress on our beyond the panel strategy as we begin monetizing our channel and brand by selling integrated micro members with more system products to come.
All of us at Maxine and are energized by the progress, we're making and are focused on execution of.
A year from now will look like a very different company and we will see our execution, making its way to our top and bottom line.
Thank you for coming along with us on the journey.
Now, let's go to the Q&A session. Operator. Please proceed.
Thank you.
Ladies and gentlemen, if you like to ask the question. Please press Star then 1 on you touched on the TV again, if you would like to ask the question. Please press Star then 1.
1 of them on the part of <unk> question.
Our first question comes from Brian Lee of Goldman Sachs. Your line is open.
Hey, guys. Thanks for taking the questions I guess, just first off on the.
The gross margin trajectory I know youre out from now mix is going to help a lot of you get the 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 what the bottom is is Q2 the bottom from you or do you think.
We continue to sort of see.
The margins stay at these depressed negative levels through the <unk>.
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 modeling and then I had a follow up.
Sure Brian. Thanks for the question of all of this is Jeff and I'll add a little bit of detail of men.
Cai can maybe add some more I would say in general we like everybody are keeping a very close watch on the supply chain.
I'd say, it's encouraging in that recently, we are seeing some of the supplies costs start to stabilize so glass is a good example of that.
Where we are we see that has peaked and it's now actually coming down again, we're not quite at the pre COVID-19.
Spike levels, but but it's heading in the right direction instead of the same thing with logistics, we're seeing improvement there.
Again, not exactly where it was a year ago, but but making progress.
I think given that it's really obviously, we're all watching to see how quickly that comes back of the second half I think we're cautiously optimistic that we will see costs improve in the second half of it's certainly that'll be will 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 maxion 6 will start to ship as we get into into the Q3 and Q4 that will help with margins. We're always working on cost reduction. So we're not just sitting back but I would say from the supply chain perspective, we're cautiously optimistic.
Kind of anything else you'd like to add to that.
Yeah, I think I think that's right. So of course, they all of those headwinds that Jeff.
Jeff described that are not really under our control, but the odds of other things that work and I'll say about the seasonality and the things that we're doing internally with Max 5 and 6 of the AAC panels. The DG business in general that go in our favor. So of course, we also have the out of.
Market poly contracts that can be sometimes a little bit lumpy at times, how it hits all of P and L. But again I think there is a.
Possibility that we'll see.
Margin improvement.
In the second half probably due to the internal effect is more pronounced to.
To the towards the back end offset half, but cautiously optimistic as Jeff said.
Okay Fair enough and then I guess the second question here just on the.
The.
The the pause in large scale in China.
You.
Talking about 2022 sort of getting back to some level of normalcy in that business can you maybe elaborate a bit on what youre seeing out there right now why you don't expect that to maybe recover faster than what gives you.
Whether it's the visibility or the orders you're seeing what kind of gives me of the confidence that 2022, you'll see that pause sort of really ease up thanks.
Thanks, guys.
Sure. So I would 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 the into Q4 I would say if you go back to maybe a quarter ago there.
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.
I'd say its a dynamic situation, we continue to assess but things are definitely trending in that right direction and you would expect that even if the supply chain costs stay where they are debt overseas cost or pricing would start the phone line. That's why we're confident with 2022 still.
Still waiting and seeing of what happens here as we get into 2021. There are deals that we're actively engaged in we're a very attractive supplier to most of the planet.
So we view of a very large pipeline, we get we get visibility into.
A lot of great opportunities outside of China.
And I would say as we get towards the end of 'twenty..1 we're more optimistic 22, I would say are optimistic our optimism is strong.
Thanks, a lot of thank you.
Thank you. Our next question comes from Philip Shen of Roth Capital Partners. Your line is open.
Hi, everyone. Thanks for taking my questions.
Congrats on the <unk>, 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.
The market pricing increases.
Kind of.
Put your P series product.
The relative competitive positioning if that makes sense and so it became a more natural and easy your answer for customers to buy the P series here in the North America.
Yes.
Yes, Thank you Phil.
The the pricing we would have a very strong pipeline of very strong demand in the us again for our product of the P series side the.
We just announced last month.
And when we look at the the pricing that is coming in from customers. It is in line with with the costs that we're seeing so we had 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.
<unk> of 15% I mean, there'll be a ramp up of that time, but when you think about the 'twenty to 'twenty 3 time frame, we expect the gross margins in the 15% rich, we're still seeing that and if anything I would say the pricing in the U S has been pretty consistent with those price increases.
The we've seen in supply chain, so it's equilibrated quite quite nicely.
So fair to say the price increases in the U S did help the value proposition for P series near term.
I suppose I don't know that I would necessarily think about it like that but but when we think about what we bring to the party.
The company that has the plant right.
Alright down in Mexicali as of.
A company that is the 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 the rising costs that are coming maybe maybe from some of our Chinese competitors. It's really I think the difference and just who we are as a company, which makes us fairly unique in that space.
So I would think about of more along those lines that I don't think things would have been that different if we without the supply chain disruption that we've seen.
Okay.
Thanks as from Maxing on air that seems like a.
Very interesting unique product to them with the unique value proposition.
I was wondering if you could share how you think that pricing.
The cost structure of kind of lines up relative to your other products, perhaps you can talk about the absolute.
The cents per watt from you made.
Perhaps you could talk about on a relative basis.
Yes. It is a very exciting very exciting product zone. It is.
I would say really the.
1 of the the many parts of the magic of it is that it really does lower installation costs.
So that will really give us.
The ability to.
Get decent pricing on it will 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 of the Maxim of air products will be higher than what we're seeing with like products going into like markets on IDC.
So.
Again, I think it's of 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 the product that nobody else can really compete with we think it is going to allow us to to sell.
Healthy asps with good profitable margin, but in a way of it'll help grow the deployment of the product.
Great and where do you expect to manufacture the maxing out there.
It will start in France, 1 of the beauties of maxion errors that it can be quickly transported to any of our factories the bar.
Rose significantly from our current module Assembly.
We are producing in France that is I would say Europe is the initial market that we see for the product, but we have the ability to flexibly put it into any 1 of our modules.
Great from a bank of ability standpoint.
N Encapsulant standpoint are you using the traditional EBITDA or can.
Can you talk about.
How bankable of the product is now and what kind of the.
Volume could we see solar in 'twenty 1.
Well as 22.
So let me take the first end of that and then Peter.
Peter Aschenbrenner speak maybe a little more specifically on the EBITDA.
So the way, we think about maxion air we are going to have the pilot production going now we have already tested it on different at least in 5 different sites across different continents.
In 2022, you'll see the initial ramp of the product and then the 2023 I think that's when you're really going to see of kick into high gear when maxion 7 cells become available maxion 7 cells bring.
Better better performance, even better performance than what we get with our current sales when it comes to reverse bias a breakdown of heat that can get generated in shaded.
Situations so.
We expect I would say of steeper ramp once we get into the 2023 time frame.
Peter do you want to cover the EBITDA apartment of the first question.
Sure Phil.
This module does not use E D a encapsulant.
As a matter of fact, we don't use that in any of our products.
<unk> been doing a fair amount of Encapsulant development work over the past 5 plus years.
This non glass product users.
The new stack of materials that is atypical for <unk>.
Glass panels.
In terms of bank of ability we've been working with.
Many of the testing agencies and with some of the membrane suppliers in Europe.
And we feel good about about bank ability currently as we're launching the first pilot installations in the second half of this year.
Okay, great. Thank you, both and I'll pass it on.
Thank you again, ladies and gentlemen, I'd like to ask a question. Please press Star then 1 on when you touch tone telephone.
Our next question comes from from now what kind of out of <unk>.
Raymond James Your line is open.
Thanks for taking the question.
You know, we have seen spot price of polysilicon.
Double roughly you know the date more than $20 of kilo now.
And yet your above market cost.
On your contract is actually going up in Q2 versus versus Q1.
A little counterintuitive can you just explain how the math works.
Yes, Pablo thanks for the high.
Right.
Yeah, Let me let me quickly go through that so the.
The the out of market policy.
Silicon is really 2 things 1 is what we are using in production and 1 is the ancillary sales that we sell some of the debt.
Material debt, we're not using internally and that can be sometimes the lumpy part that we are doing the looking for opportunities to sell it of course, we are selling it at the loss because the contract is locked in a way way above.
Market.
This is but we expect some 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 you know we are periodically reviewing the bay.
<unk> 4 of those market price and then adjust accordingly, what we consider out of market.
Okay understood.
In Q1, there was a law the.
$2 million on the Noncontrolling interest line I assume that's from the joint venture in China.
Given the.
The premium module pricing that you guys have talked about because of the demand in China.
Why would that JV the at a loss.
Yes, so maybe just to speak to speak of them that it is.
The JV itself is currently in ramp mode. So as you know this we initiated volume production of 2 gigawatt that is scaled to 5 gigawatt and it's also in the process of scaling up to 8 gigawatts.
So you really are seeing a lot of transition costs.
As the factory begins to begins to expand and I think that's partially contributing to what you see.
We are on a great trajectory within the JV to have a low cost product. We've got some new derivatives of the P series that will be coming out towards the end of this year and that coupled with the scale that we're getting as we scale of 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.
We are beginning of the sale.
Got it no that's.
Helpful and.
Final question. This 1 also on China.
As you are well aware of a lot of conversations about.
The forced labor issue in Western China, and in the week or community.
As it relates to the polysilicon supply can you just talk about your sourcing of poly for the Chinese.
The operations and the steps youre, taking to avoid any linkage to the forced labor concerns.
Yes, so as you know the a b the for the IDC products that we produce out of out of Malaysia, The Philippines, who are fabs.
We source all of the poly from the United States for the the JV operation out of <unk>.
Going back any close to 5 years ago, we implemented a tracing protocol.
For the polysilicon for the supply chain.
And it was really driven by some of the low carbon footprint business that we were taking out of France and some other markets. So we have of 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.
The here soon even beyond the U S customers for the product of that includes what comes out of China, but also what will happen out of the the joint venture that we have with our our Eagle joint venture no excuse me with our with our U S. P series joint venture out of Mexicali and in Malaysia, the wafers coming into that.
We'll also have that same traceability.
So, let's say that coupled with all of the.
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 our commitment to the elimination of all forms of force and compulsory labor. So as the company, we feel really good about our position.
Okay. Good.
With the here. Thank you guys.
Thank you Michelle.
Thank you.
Thank you again, if you'd like to ask the question. Please press Star then 1.
1 moment please.
Yes.
As there are no further questions. We will now conclude the call. Thank you. All again you may now disconnect.
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Yes.
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Net.
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