Q2 2023 Maxeon Solar Technologies Ltd Earnings Call

Okay.

Good day, ladies and gentlemen, welcome to the Mexican solar technologies second quarter 2023 earnings call.

Currently all participants are in a listen only mode.

Later, we will conduct a question and answer session and instructions will follow at that time.

A reminder, this conference call is being recorded.

I would now like to turn the conference over to our host Mr. Robert Lee of vaccines solar technologies.

Sir you may begin.

Thank you operator day, everyone and welcome to Maxion second quarter 2023 earnings Conference call.

With us today are Chief Executive Officer, Bill Mulligan, Chief Financial Officer, Guy, Strobic, and Chief strategy Officer, Peter actually better.

Let me cover a few housekeeping items before I turn the call over to Bill.

As a reminder, a replay of this call will be available later today, I mean investor Relations page of Maxion website during.

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 Mac Jones Investor Relations website.

Also we will reference certain non-GAAP measures during today's call.

Please refer to the appendix of our supplemental slide deck as well as today's earnings press release, both of which are available on Maxion Investor Relations Web site for a presentation of the most directly comparable GAAP measure as well as the relevant GAAP to non-GAAP reconciliations.

With that let me turn the call over to Maxion CEO Bill Maughan.

Thanks, Rob.

<unk> delivered a solid second quarter with revenue growth of 9% sequentially at 46% year on year.

This growth was driven largely by our increasing exposure to the U S utility scale sector.

In spite of significant price pressure in the distributed generation market. We maintained strong asps that allowed us to achieve gross profit and adjusted EBITDA above our guidance midpoint.

I ever we experienced a rapidly worsening demand environment late in the quarter, which unfavorably impacted our <unk> shipment volume and associated revenue.

I will cover that in greater detail later in my remarks.

Last but certainly not least I'm very pleased to report that we are still like in Albuquerque, New Mexico as our U S manufacturing site a major step forward for this project.

I'll now provide an update of our second quarter key initiatives and accomplishments and our utility scale and distributed generation businesses.

Hi will then review, our Q2 financial performance and expectations for Q3, and the full year and then we'll conclude with Q&A.

As mentioned about maxing out utility scale business have become our primary growth driver we shipped over one four gigawatts of annualized volume in the second quarter, 90% of which what's the customers in the United States.

This included primary <unk> Gemini site outside of Las Vegas, Our first project in the U S utility scale market as an independent company and a new record holder for the largest solar power plant in the country.

Completing this 968 megawatt project was a big deal for Us and we can now shift our focus to delivering further into our three five gigawatt backlog with higher contracted asps.

We also celebrated our Mexicali Marco achieving full capacity in late June with a ribbon cutting ceremony attended by Governor Iberia and other senior government officials from the state of Baja California.

We expect that Mexicali shipments will continue to ramp up through the second half of this year.

Over the past four quarters, our technology and operations teams have delivered continued improvement expanding factory output by over three times and increasing average panel power by around 5%.

With a solid operating foundation in place and Arctic visibility at contracted prices into 2027, the table nicely for our U S expansion.

We disclosed today that we have selected a site in Albuquerque for our U S cell and module factory.

And we are very grateful for the strong interest and support extended by the state and local governments.

I am speaking to you today from our new site, where we will be welcoming governor grisham in Agra other dignitaries tomorrow for a press event.

We are pleased to have completed our exhausted site selection process and are now moving forward quickly to submit site specific plans to do.

So that they can conduct site diligence and complete environmental studies, including a leap at review.

Due to strong customer demand and the anticipated availability of sufficient infrastructure at the new Mexico side we.

Our evaluating the option of upsizing the scale of our U S factory by approximately 50% to a nameplate capacity of four five gigawatts.

We are currently in discussions with customers and expect to be in a position to provide more definitive information in the near future regarding the final design capacity of our Albuquerque factory.

Maxion is uniquely positioned to be a leader in re shoring at solar supply chain to the United States. Our product is in strong demand due to its industry, leading performance reliable delivery record and high ESG standards and our stakeholders appreciate the value of our proven experience in deploying world class.

Solar technology worldwide, including in North America.

We are highly focused on moving forward swiftly to realize this exciting project.

Now, let's shift gears to the DG business as.

As I mentioned earlier, we experienced an unexpectedly rapid change in the market demand environment late in Q2.

The cause of this change with high levels of industry wide channel inventory in both the U S and Europe .

In the U S. The primary drivers were the implementation of NIM three dot hour in California, and the effect of higher interest rates on residential sell through and low cost of power regions, such as the southeast and Texas or sales processes focused mostly on year, one bill savings.

Two dot or sales, Russia in the first quarter essentially pulled in demand that would normally have been spread over several quarters and it will now take time to replenish the top of the funnel.

Consequently, our backlogs led many sales professionals in California to take time off in the second quarter and dealers are just now testing them, three dot or sales processes and the end customer value proposition.

We fully expect the California market will regain its fundamental strength over time, but we have tempered our volume outlook in California for the second half of 2023 to reflect the impact of this policy disruption.

We saw less impact from the aforementioned demand softness in the southeast and Texas and so our exposure in those states is relatively limited.

U S. Residential we are typically most active in locations with high utility prices will size constraints and its dollar sales processes based on product quality and long term savings.

The majority of U S. <unk> sales were to Sunpower and were in line with the terms of our supply agreement.

In addition to Sunpower. We now also have our own maxi unbranded dealer channel, which is showing promising growth roughly doubling sales from distribution to installers in Q2, although behind our original volume targets due to the demand factors mentioned above.

As a reminder, our purpose at this channel is to address segments of the market not currently served by Sunpower.

We have increased the rate of new sales hires and dealer Onboarding and expect to start seeing the results of this activity later this year.

While we continue to maintain a net positive relationship with Sunpower as recently disclosed both parties believe that certain provisions under the master supply agreement have not been complied with and have notified the other of such Noncompliant.

Sunpower has a large noncompliance at the non circumvention cost to which we are responding by conducting a thorough investigation and providing the information requested by Sunpower as wireless taking proactive steps to cure the alleged noncompliance.

Maxion has notified sunpower in writing that it has failed to pay approximately $29 million of past due invoices.

As contemplated under the provisions of the Master supply agreement, we are engaged with Sunpower and intend to work towards a swift resolution of such claims.

We remain confident that both parties are incentivized to resolve this dispute in a manner that is beneficial for both parties and consistent with the spirit of the current contract.

In Europe overall demand is still growing although the abundance of low priced Chinese module has created a significant inventory bubble in the commodity segment of the market.

Because we sell a fundamentally different product and have direct access to installers. The market dynamic is a bit different from maxion, having said that the sales environment. In Europe is also quite challenging and the job of our sales team is more difficult today as price reductions are a top of mind theme and customer.

Yes.

In Q2, we reduced IDC prices in line with our earlier plans and made ASP cuts on our performance line panels that were more than offset by cost reductions.

Even with these price decreases we held our Q2 GG gross margin above 20% in Europe .

Overall in our DG business, our differentiated products and channels enabled Q2, asps that were largely within the expected range and we hit our planned profitability levels.

Absolute dollars and percentage terms.

To mitigate the current demand slowdown in residential we have been allocating increased sales focus and products to C&I applications. Both in the U S and in Europe .

Due to the longer sales cycles associated with C&I projects. We expect these sales to somewhat increase the weighting of our second half shipments towards Q4 and into 2024 as Ty will explain later.

We have experienced several demand cycles in our 19 years in the solar business and have built our product portfolio and channel strategy to be as resilient as possible to the impact of such cycles.

We believe that our strategy of selling differentiated products through a differentiated channel is effective and we intend to continue to develop that strategy.

Key next steps along this journey include extending our competitive advantage with maxion seven expanding revenue and profit contributions from our beyond the panel strategy and continuing to ramp up our maxion branded channel in the U S.

In summary, we strongly believe that our portfolio of U S utility scale and global DG exposure is a sound strategic platform that provides long term opportunity for profitable growth, while diversifying market risk.

With that I'll turn it over to Kai.

Thank you Bill.

I will discuss the drive up and details of last quarter's performance and then provide guidance for the current quarter.

Well as updated guidance for the full year.

Total shipments for the second quarter were 807 megawatts up 4% sequentially and 55% year on year.

We fell short of our guidance of 860 to 900 megawatts, primarily due to the previously mentioned unexpectedly rapid changes in U S and European DTE demands.

Revenues for the second quarter were $348 million.

Also below our guidance.

We posted healthy sequential growth in U S D G and maintained our ASP level they are above 70.

In our new Maxion branded channel, our volume ramp was slower than expected, but higher than planned asp's allowed us to exceed our objective in terms of profit margins.

In Europe , we executed planned price decreases on both IDC and performance lines skewed, but held our price premium to market, which enabled us to slightly expand gross margins sequentially.

non-GAAP gross profit in the second quarter was $57 million.

Or 16, 3% of revenues, which was above our guidance midpoint.

This was driven by strong efforts by the sales team to maintain Asps continued cost reduction progress by the operations team and a favorable supply chain environment, particularly with regards to polysilicon and freight costs.

non-GAAP operating expenses were $41 million and the <unk>.

Second quarter up from $38 million in the first quarter and consistent with our guidance of $42 million plus or minus $2 million.

Adjusted EBITDA in the second quarter was $30 million or eight 7% of revenue and in line with our guidance of $24 million to $34 million.

GAAP net income attributable to stockholders came in at negative $1 5 million.

Compared to the $20 million resides in the previous quarter.

The difference was primarily driven by a delta of $19 million from the mark to market valuation adjustment of our prepaid forward.

Moving onto the balance sheet.

We closed the second quarter with cash cash equivalents restricted cash and short term investment of $456 million.

Compared to $304 million at the end of the first quarter.

This increase was attributable to our capital raise in May and partially offset by second quarter capital expenditures of $24 million.

As well as some debt repayments.

Following our capital raise we began planned project expenditures for our next generation <unk> technology, which accounted for more than half of our capex for the quarter.

Inventory expanded from $316 million to $349 million during the quarter, reflecting the slowdown of DG demand and the continued ramp of our performance line cell and module capacity for the U S utility scale market.

In this current quarter, we expect continued competitive pressure and challenging demand dynamics in the residential market to hamper our growth trajectory on volume and margin and in utility scale, we still have some lower priced bookings from 2021 to fulfill.

Indeed, we expect competitive pricing pressure and challenging demand to persist and residential for the remainder of the year and therefore expect to see a somewhat higher mix of <unk> business.

With this context in mind I'll now.

Ill turn to our guidance for the third quarter of 2023 and the full year.

We project third quarter shipments of between 700 740 megawatts.

The midpoint of this guidance represents roughly 10% sequential decline due to the softer near term residential demand outlook.

We project third quarter revenues of $280 million to $320 million.

Consistent with the expected sequential volume decrease.

non-GAAP gross profit is expected to be in the range of $30 million to $40 million.

Reflecting expected gross margins in the low double digits.

This profile of lower Q3 margins sequentially is consistent with our previous expectation, but we now expect that our Q3 gross margin percentage will be also affected by the challenging market conditions.

non-GAAP operating expenses are expected to be $43 million.

<unk> or minus $2 million.

$1 million increase from the previous quarter at the midpoint, mainly resulting from incremental investment in our U S DTC marketing team.

Adjusted EBITDA in the third quarter is expected to be between 2% and $12 million.

Third quarter capital expenditures are projected to be in the range of 29% to $35 million.

Higher than previous quarter.

Reflecting a full quarter of maxion, Debbie Capex investment, which we started late in the second quarter following our capital raise.

For 2023, we expect total capex to be in the range of 150 to a $170 million.

Distant with our previous guidance, which we adjusted in May to account for Mexican Sir.

As a reminder, this annual Capex guidance excludes spending for any U S manufacturing.

For the full year 2023, we are updating our revenue guidance to $1 25 to $1 three 5 billion.

And our adjusted EBITDA guidance to $80 million to $100 million.

With that I'll turn the call back to Bill to summarize before we go to Q&A.

Thanks, Cai as I have said on previous earnings calls my goal is to help make maxion one of the most profitable companies in the solar industry by driving aggressive manufacturing cost reduction and operational excellence, while extending our panel technology leadership and leveraging our unique global channels to market.

Despite the current industry headwinds I am still fully focused on this objective.

Looking forward over the coming three years, we have a pipeline of projects that I expect will drive financial performance improvement at a structural level.

In 2024, we expect to benefit from an entire year of full capacity operation and our utility scale manufacturing facilities.

Selling into a firm backlog at higher contracted prices in.

In 2025, we expect to see significant contribution from our new Maxion seven capacity and in 2026, we are excited about the prospect of ramping our new Albuquerque cell and module factory. Thank you for your support.

Now, let's go to Q&A operator. Please proceed.

Thank you we will now conduct a question and session. As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.

Please standby, while we compile the Q&A Rob Kuster.

Yes.

Our first question.

One moment please.

Our first quarter.

Okay.

Trimmed one of <unk>.

Yeah.

Okay.

Okay.

Julian you there.

Oh, Hey, sorry, I was on mute there I apologize.

Good afternoon, Steve. Thanks, so much for the time I appreciate it but wanted to just ask you guys about what's going on in Europe here and how are you thinking about the RBC versus T series can you talk a little bit about where the pressures are and just confirm how you're adapting to the new evolving landscape, especially as you think about the international markets and maybe how you think about <unk>.

Another evolving end market dividend and maybe how this impacts your extension opportunity do you think about leaning into Max evidenced further DG oriented.

Production expansion.

Yes, Hi, Julien.

Well it has been tough in Europe , I think the conditions there have deteriorated faster.

And most of us in the industry expected.

Primarily driven by really high inventory levels in.

In the commodity sector.

We are somewhat immune to that.

With a different value proposition and sell direct to installers with unique product, but we're not isolated from it. So it has it has created some pressure for us.

We're going to respond in a couple of ways.

First of all there are still many opportunities to grow within Europe , just from a market share standpoint for example in Europe in Germany, the biggest PV market in Europe , and some of them are very small share. So we're doubling down on our sales and marketing efforts to try to just grow the bigger the full pie.

I'm glad you mentioned C&I that really isn't good opportunity for us we have a lot of past experience in that sector for those as you've been following this company for a long time.

Yes.

The sector, we know well.

And there is a lot of opportunity there there are specialty applications within that sector, where our high performance products play really well for example in a cardboard.

Building integrated PV or even in the U S here, particularly in things like agricultural applications, where ammonia resistance of our panels as valued so.

We do have other.

Other markets, we can pivot into but I would say fundamentally do believe Europe is still growing.

Bit of a plateau.

We still are very bullish on the DG market in the long haul, but I think this is obviously a little bit of a bump in our out here.

And Julien this is kai.

Also asked about the P series, specifically in Europe .

On the P series.

We are in a position where our costs follow a commodity price.

Index, so basically follow the prices of commodity.

Panelists that go into Europe , and also we have a uptake right from our joint venture, but not an obligation.

We can modulate the offtake in line.

Our demand forecast.

Excellent. Thank you guys very much and then if I can pivot super quickly over to the question of.

Look you've got this sunpower arrangement, obviously in 'twenty three but also there are some question marks around 2004 can you talk a little bit about.

That conversation here and the reopener.

How one could impact the Otto Garrett just elaborate a little bit more about the situation at hand and the conversation.

If you will entitle us to together if you can.

Yes, as we mentioned in my prepared remarks, we have.

Entered into.

With sunpower, but at a high level, we do believe that.

Our interests are fundamentally aligned its a symbiotic relationship.

They have many years of experience.

They know how to do it while we deliver a really high quality product that is great for their channel. So we think it's a <unk>.

Mutually beneficial relationship and it's going to be in the interest of both parties to resolve this thing as fast as possible.

Alright, but theres still expecting some amount of volumes next year.

Understood.

So those conversations.

The contract the contract stands.

As it is Julian so we expect that.

It will continue and the volumes will continue.

Alright fair enough guys. Thank you very much I'll leave it there I'll ask one.

Thank you.

Thank you one moment for our next question.

Our next question comes from the line.

Oh.

Philip Shen of Roth km.

Please go ahead.

Hey, guys. Thanks for taking the questions just wanted to follow up on the Sunpower thread there you talked about.

Maybe having $29 million that you are collecting.

And then Matt.

Power has their allegations against you guys wanted to understand what the path to resolution might look like and as well as the timing and so do you think it's near term type resolution.

This could sustain for some period of time and during that time.

Additional.

Receivables being.

Added to the balance and so as that.

Creasing overtime. Thanks.

Yes, Hi, Joe.

Bill here.

Yes.

This thing has just started.

Don't really want to speculate on that trajectory.

We will take I will just say once again this is a very symbiotic mutually beneficial relationship. There is plenty of value here to go around I think it's something that both parties will be certainly incentivize to resolve quickly.

Hi, maybe you could speak to the second half of that question.

Yes, I would.

I would say that.

On the.

On the topic of the cash flow.

Contact with Sunpower on that topic.

Are willing to work with them.

But of course at the same time, we got the money to our our exposure and modulate accordingly, so but generally I think there is there is a path that we can come to a resolution there.

Got it okay.

Is there a way to frame what the size of the potential exposure might be 29 is it.

Seems like a base level.

Is there.

Michael.

What might be a capped fee on that number thanks.

No not really at the moment.

The number that we have to Philadelphia.

The $29 million debt.

OLED <unk>.

We have shipped more than that.

Invoices out there maybe.

Maybe just one number I can give which we have publicly disclosed last quarter. Our total sales with our $79 3 million in the second quarter.

<unk> just given.

Given extra.

Reference points.

Okay got it.

All of that in question in terms of collections are.

Just.

Modest percentage.

But as I said at the moment, we are stating the facts and we are in discussions with Sunpower tool.

To resolve.

That situation. So I can't comment about what is what is in question and what is not I think we're going to come to resolution.

I appreciate the color. Thank you.

From our standpoint, just just to add from our standpoint, you have seen our liquidity balance. So I think we are we in a position to.

As our customers are to some degree.

Thank you Kai shifting over to the slowdown that you're experiencing.

And your <unk>.

Please you talked about it this way Dan could persist at least through Q3. So I was wondering if you could share how long do you think this would last.

Yes.

And maybe speak to it from.

The two key continents U S and Europe and then.

Should it persist through 'twenty, four and what do you think needs to happen.

Order for the challenging environment turnaround.

So there might be differences between the regions. Thank you.

Yes, so Phil.

I would say is.

You can see from our guidance.

We expect Q4 to be stronger than Q3.

So there's going to be some recovery there part of that is due to seasonality.

I would say.

Having been through many of these cycles before they actually can correct fairly quickly.

Not oftentimes as fast as they deteriorate unfortunately, but.

I'm still quite bullish on the long term prospects of this market I think we will see a recovery in California, It's still a very strong market. It's a new world under three point out, but I think the value proposition still works, you'll see increasing storage attach rates.

It's still going to make sense economically for end customers and so I think it's just going to take a little time for this to settle out for the inventory bubble could be bought off and then hopefully no one can predict the future but.

Hopefully I think the long term fundamentals I mean, I know the long term fundamentals of <unk> are strong.

Jonathan.

This is Peter just to make a note just to be clear, we don't see actual demand slowdown market slowdown in Europe market. There is growing nicely. The issue there is inventory that needs to be worked off.

Okay. Thanks, Peter Bill Cai I'll pass it on.

Thanks, Phil.

Thank you one moment for our next question.

Our next question is from Brian Lee of Goldman Sachs <unk> Company.

Hey, guys. Good afternoon, thanks for taking the questions.

I guess just following up on.

The line of question around Sunpower here I, just wanted to understand a little bit the dynamic so.

Given the situation there are you.

Restricting.

Shipments to Sunpower in the near term just given the situation of not getting paid or are they.

I guess reneging on <unk>.

Contractually obligated volumes in the near term until some of this gets resolved kind of well, what's the sort of.

Go forward here and three Q4 Q because it sounded like in your prepared remarks <unk> came in in line with expectations all obligations, what kind of fulfill but what's what's this current situation.

Translating into.

In terms of how you are treating them over the next couple of quarters.

Yes, Hi, Brian It's Guy So we can't really go into all the details.

The conversations at all.

Relatively relatively fresh so.

I just wanted to.

I will say that we.

Reiterate from the previous answer that we are.

Willing to work with them that will cause us to monitor our exposure and modulate that that we have the ability to be to be helpful. And also that we expect that.

The contract is going to be on us and.

I think I'll leave it there.

Okay, but I guess, just given the guidance here coming in relatively.

Soft.

Versus expectations and maybe versus.

Normal seasonality this part of the year I guess the question is how much of this is.

Broader market slowdown inventory rebalancing versus.

Just this cut.

Specific issue.

Albeit I am sure there is some demand issues underlying.

Some of the challenges with that customer but.

What what what part of this is just the broader market read across for US is what youre trying to.

Ultimately resolve with Sunpower era in the near term.

Yes, I mean again.

We're assuming that.

We're going to get the Sunpower relationship back on track.

And.

The contracted shipments are a part of our guidance.

The softness we're seeing here is.

Largely result of the broader market.

Slowdown in inventory buildup.

And in Europe , and so.

At times like these where we see a slowdown in DG that we're very happy that we are diversified company and have exposure to the utility scale sector. That's that's very strong and growing.

As we noted in my prepared remarks, we are we are.

It's the growth area for our company going forward in fact, we're here in Albuquerque, New Mexico, and our new site.

We're super excited about getting this project up and running it will be a few years before it.

It starts to contribute meaningfully.

But in the meantime, we're also growing our existing Malaysia Mexicali.

Revenue for next year so.

These markets tend to be somewhat cyclical. So we believe having some diversification between the DG market, which is currently in a bit of a slump.

The U S utility scale sector, which is currently on fire.

As a good strategy.

Understood.

It is two two final ones and then I'll pass it on.

And I hate to keep harping on this but it seems like it's a pretty incremental development here. So just want to make sure. We're all on the same page so.

It sounds like Youre, saying, Bill and correct me if I'm misinterpreting. It you are basically assuming shipments to sunpower over the rest of the year is in line with whatever your original expectations would have been prior to this.

Kind of challenging.

Status with the customer having arisen here recently is that that'll be the first question and second question is presumably.

Sure.

Back and forth here is around price is that is that fair and then what's what's the potential resolution.

You guys need to come to some sort of compromise is it all just going to come down to price. Thank you.

Yes, I think in terms of contracted volumes.

Your presumption is largely correct.

In terms of what the dispute is about.

I really can't say much more than it was in our prepared remarks.

The mutual bridges were discussed there.

And just to say the guidance its really the contract minimum.

So no no upside or any anything any additional volume really the minimums in the contract.

Okay.

Okay. Thank you one moment for our next question.

Our next question comes from the line of Andrew per Cocoa of Morgan Stanley . Please go ahead great.

Great. Thanks, so much for taking the question.

I just wanted to come back to the manufacturing facility in <unk>.

Albuquerque, So as you think through that incremental.

One five gigawatts that you might add very clearly dependent on the strong demand that you're seeing I mean is that.

Broad based demand or could there be one or two large customers that are willing to sign as anchor tenants on that incremental capacity and maybe a slightly different question on the same topic. How are you thinking about contracting out that capacity when it comes to pricing around domestic content and some of the dynamics that play with the global polysilicon prices. Thank you.

Okay, great well I'll take the first end of that and I'll, let Peter talk a little bit about the year.

The pricing environment.

Im.

Yes.

When you think about utility scale customers of the developers, we're selling to you they buy in big chunks alright.

Our primary <unk>.

Customers.

A great example of 968 megawatts right one gigawatt to one customer for one project.

When you think about it.

It's less than 10 utility scale customers that will will contract this entire volume.

Sure.

Upscaling is basically just really based on the strong market environment.

And also the fact that we found that's really outstanding site here that is really shovel ready.

We'll have all the necessary facilities that we need for such a large facility in place in time to ramp that facility. So we're in negotiations with customers, but we're optimistic about it it will be at least three gigawatts.

We'd like to be in a position to be able to have a land that space utilities.

The infrastructure to be able to upscale and this really strong market environment right now.

And Peter I don't if you want to mentioned ITC here sure I'd say that in terms of pricing structure.

Any incremental supply, but also for the baseline three gigawatt supply.

There's no fundamental difference there in terms of our philosophy.

We're looking at.

Pricing that includes the value of local manufacturing.

Cell and module level on it I think we've been clear that we expect that that will be a big.

Big help to our customers in terms of getting them. The ITC bonus. So there is some value of that for us and it also would would involve indexing to keep price inputs.

Cost inputs for us so that our margin would be protected over time.

With a multi year offtake tenor.

Yeah.

Got it.

And when we execute.

This project well.

Signed contracts and right now we're talking about contracting all the way through 2028 and into 2029 with these customers.

Got it Okay. That's helpful. And then just coming back to the size of the facility. So it sounds like it's pretty easy to add extra one five gigawatts based on the land that you have available to you there how much higher chemical before you need to start doing substantial rework around the land or substation upgrades just wondering what the.

Max capacity that we could be thinking of that longer term at this facility specifically thanks.

Im looking out over a field that run flat or up five files up to the mountains with nothing there. So we have got we have a large space.

Sure.

And actually in all seriousness we.

Options on adjacent parcels.

That will give us optionality to go even bigger if we watch it.

Okay.

Perhaps I think one of the things thats likely to happen in the U S is more.

Localization of components of the slot supply chain closer to that.

We're at the end demand is.

So I think thats.

Outcome as well over time.

Okay. Thank you I'll take the rest offline.

Great. Thank you one moment for our next question.

Our next question comes from the line of Graham price with Raymond James. Please go ahead.

Hi, good afternoon, thanks for taking the question.

I guess just following up on on the prior question. If you do end up.

The expansion project four five gigawatts.

With the Doe loans scale as well.

If we think about something like an 80% LTV is that kind of in the ballpark.

This is Peter.

We would expect.

Bowie loan to scale.

<unk>.

The <unk>.

Constraints there are typically around some of the financial metrics.

Loans total value debt coverage ratio et cetera, which should scale with the size of the facility. Obviously, that's not a done deal yet but that would be our expectation.

With respect to the total coverage of the loan to total project costs, we haven't.

Mentioned that disclose that specifically.

What we've said is we would expect that to be a majority of the.

To cover a majority of the expense.

The project the project costs and together with customer prepayments would be.

Large majority.

Okay got it thanks that's helpful.

And then for my follow up just quickly on the guidance are you able to provide the breakout between IDC versus shingles, maybe for <unk> and the full year I know previously IDC was expected about one gigawatt, but.

Obviously, that's come down.

Yes.

No.

Graham typically we do not provide.

That guidance.

Shipments or revenue basis.

That breakdown.

One gigawatt hour in ton of capacity RBC.

Okay.

Thank you very much I'll pass it along.

I appreciate your question.

One moment for our next question.

Next question comes from the line of.

Kevin colored of Pickering Energy partners. Please go ahead.

Yes. Thank you I wanted to stay with the utility scale.

Longer this expansion in the U S.

I think we had talks in the past kind of a well targeted.

Low to mid teens gross margin for what you're bringing in from from Mexico.

As you think about the expansion in the U S and taking into account the totality of the 11th credit.

The ITC value added pricing, but also higher U S costs.

Is that reasonable expectation for the margin of those facilities.

So Kevin it's Kai.

Thank you.

Already kind of.

Put up the piece is pretty well.

In terms of how to think about the margin.

The.

Incentives.

We are getting so called T. My incentives under the IR.

Our mens to kind of bridge the difference in cost between Southeast Asian made modules modules made in the United States.

And also provide a little bit of an incentive to.

Built in the United States and not just make it about the same margin and return wise.

And then of course on top of that.

ITC credits that we expect to be eligible for with the.

Products, which also is going to provide an additional benefit.

So overall, we actually expect to be above the.

15% long term financial model margin for us in that part of the business are much above the 15% we haven't really.

Commented on I think it's a pretty.

A bit premature to comment on that right now on this call, but we do we expect them to be above that markup.

Okay, great. Thank you.

I guess on.

On the DG side with the shift in focus to the C&I.

Does that have a similar margin profile to the residential or is it.

Typically think of that as being a little bit lower margin business can you comment on that.

Yes, C&I typically is.

A little bit lower margin.

But as I said earlier, we typically do sell into the value segment.

Sub segments of that segment, which are things like carports.

And other specialty applications that command a premium and then also.

From a from a cost structure of the format of these panels is different they're more commercials format panels or a little less costly to make.

Yes, the margin profile is a little bit lower.

But they also come in and bigger chunks of sales as well, so theres, a little less opex required to move them into the channel.

Okay.

And just one last quick one on the guidance.

The implied Q4.

There is a pretty decent step up in EBITDA I think I heard earlier, you referenced seasonality in that but is there an improvement quarter on quarter in the DG business embedded in that improvement.

In Q4.

So if you talk on an absolute level.

Kevin there is more shipments into the DG.

And margins on a quarter on quarter basis, we would expect them also to be slightly healthier again again compared to the third quarter. So we will have both the volume effect and the favorable margin effect that then gives us more EBITDA dollars basically for the quarter for the reasons that debt.

We talked about a seasonal but also giving the maxim business.

Recoveries.

Alright, Thats all for me. Thank you.

Thank you one moment for our next question.

Minder to ask a question. Please press star one on one on your telephone and wait for your name to be announced.

Our next question comes from the line.

Donovan Schafer of Northland capital markets. Please go ahead.

Hey, guys. Thanks for taking my questions.

I want to kind of flesh out the C&I side of the business a little bit just because.

You are kind of a sprawling organization, you've got a heck of a lot of products to offer.

And historically there was you could do some larger.

C&I type sales with a direct force you talked about like Agra bolt <unk> and stuff.

But then there's also historically when part of Sunpower. There was the C var channel commercial value added resellers.

I kind of forget if that's still something.

Sunpower.

One is in the U S market or if you have you have your own see var channel in the U S. While also having like a direct C&I channel.

And then and then and what that's like in Europe , and also again with all the product offerings, you have cases, where <unk> can be fantastic. If roof space is limited, but then if you are talking about like a big box retail store, maybe they'll go with P series, and then you even have stuff that.

The maxion air and all of that.

Yes. It was it was going to be pretty was going to be light weight.

That you could.

Go on.

Rooftops in Europe that are 100 years old and not have to retrofit. The building. So there is a whole suite of stuff you've got there in kind of different channels. So I'm. Just wondering if you can kind of update us where the bigger parts of that are where the emphasis is.

And kind of just help us to think about it instead of just again real sprawling offering you've got.

Let me clarify anything there would be helpful. Thank you.

Sure. This is Peter I'll take that one.

First of all congratulations on the new baby.

Thank you.

Probably not getting much sleep. So see var was kind of an organized the organized channel approach that.

Sunpower.

And for many years and in fact that we have a similar channel in Europe .

Sunpower I believe got out of that business.

Some time ago.

We've continued to serve commercial customers and <unk>.

Europe .

Generally through a similar structure, where a lot many of the installers do both but some of the installers are specialized primarily in.

Small commercial might be say small kirsch much up to say have a gigawatt half a megawatt in terms of roof size.

And as you said there is.

There are certainly a fair share of it.

Installations that.

That can benefit from the higher efficiency higher productivity shade tolerance, all the things that our technology.

Can deliver and then in addition to theirs.

Some owners that.

One the building want a longer term.

Energy delivery prospect as opposed to being primarily focused on year. One savings. So you see the same kind of distribution of buying behavior in commercial.

You do in residential and we cater to the premium part of that market.

In the U S.

We do have kind of I'd say legacy connections to some of the.

Some of the players the EPC players that serve that small commercial light commercial market and there is also reasonable amount of demand.

Slightly larger beyond the meter behind the meter applications.

Where because of limited land space or.

Because of.

Expenses Pos in the case of a car park.

Again, our product makes a lot of sense and then as you mentioned.

Match on air.

Planning to introduce that in a little bit higher volumes next year.

<unk> serves a specific segment so.

The C&I market is not new for US I think what is new is.

The more of a bias towards that market to mitigate a little bit of slack on the resi side until that inventory clears.

Right.

Ed.

Particularly in Europe .

We don't talk a lot about it but for example in Italy, we already do a fair amount of C&I business.

And up until recently, we have been very supply constrained on our IDC product. So it hasn't been a huge focus for us, but given that we have a lot of historical knowledge and like Peter said, some legacy connections here and something we feel like we can we can move into fairly quickly. You also mentioned maxion air which is.

Still in our plans.

And youre right that could be a really excellent product for a number of different applications.

Okay and then.

Second question I have is this is for you bill.

I watched a video clip of you from interstellar Europe , I believe im kind of trying.

I'm trying to recall this off the top of my head so I might have.

Remembering some things correctly here, so feel free to correct me if I'm wrong.

The interview you were talking about.

Plans too.

Move to top Kahn with the P series Shingled, Inc.

I'm just curious.

<unk>.

If you have any kind of a timeline around that if thats premature.

And then if there would be meaningful investments that would need to be done or if this is basically just using really the same type of slicing and dicing.

Shingling equipment that you have and they're just used to give additional validation our certification of work around shifting or being enabling to do top com.

And lastly, just the facts if it's just about kind of keeping up with general solar trends or if there would be any sort of special incremental technology.

Benefits.

Performance benefits I know you get an uplift and durability.

Efficiencies some stuff with.

The current mono PERC.

<unk>.

Any of that kind of magnified or multiplied.

You started doing this with top com.

Yes, okay, great. Good question.

Yes, our new.

U S factory will use top contact knowledges.

It is maturing rapidly right now in the industry. So there's there's not very much technology risk with that at this stage that being said.

It does get harder and harder to make high efficiency cells.

Further up the move and the efficiency charts, our Intel is that.

There are a lot of companies in the top line space that are currently still struggling with yields and costs.

Our long long experience in high efficiency technology actually puts us.

In a preferred position to address.

Address some of these issues because we start to converge on very high efficiency solar cell designs a lot of the issues.

Converge as well and so we have technology solutions and expertise that I think can make us a really world class top car manufacturer and so thats part of our strategy everything going forwards will likely be top on technology, whether or not we retrofit some of our old per capacity TBD, but.

It could be for that product, that's still doing very well.

Being able to import that into the U S and we've got a contracted out for a long time.

Jonathan.

And all of our all of our technology going forward for our performance line will be tough.

Sorry for the performing finding out of course, we're going to continue to grow and expand our IDC portfolio as well.

Okay, and just to be clear on a couple of things. So when you said yield other companies struggling.

Youre talking about the manufacturing yields not like an NRG yield or something for.

Yes.

Perhaps a little bit above.

But.

Okay got it and then.

And then you are saying so there would be a sort of a retrofit of some kind that would be required for say like the mexicali facility not that you would invest Alex lesson that youre not.

Yes, yes.

We rebuilt those facilities just a couple of years ago, we had seen this trend coming so we did plan additional space in the facilities too to upgrade its Matt.

Necessary just to your question of economics of that additional investment payback.

And so we'll do that math and when the time comes we will consider that but for right. Now we have a lot of work on our hands Dakota three gigawatt factory here in new Mexico, So we're going to focus on that.

Okay, well, great. Thanks, guys I'll take the rest of my questions offline.

Alright. Thank you so much for your questions one moment, while we queue our final question.

Okay.

And for this question from a a welcome back Philip Shen of Roth <unk>. Please go ahead.

Hey, Thanks for taking the follow ups here just had a few on the Doa.

Loan guarantee and the new facility.

Wondering if you could give us a sense of the timing of when that could be finalized.

Are we getting.

Closer could it be in the next month or so or do you think we have to wait till year end or perhaps into 'twenty. Four and then also can you remind us.

Or help us understand what the wafer sources would be.

And so.

Have you with us announcement locked in a secure supply of wafers. If you mentioned that earlier, sorry, if I missed it and then finally.

Why announce this facility today when the Doe loan guarantee has not been provided so thanks for taking the follow ups and I appreciate it.

Alright. Thanks.

Well.

The site selection process. Unfortunately, it's taken a little bit longer than we like.

It really has been the bottleneck for our completion of due diligence there is a certain amount of site.

Specific diligence they have to do including things like environmental reviews.

Also we really cant finalize the financial model for the project until we knew that the site specific details. So that's done now and so we expect that we're going to be able to to move. This project forward at a rapid clip from this point.

I'm sort of hesitant to forecast timing.

Perhaps.

Peter can you give some color on that and also Peter is going to look closer to the wafer supply situations.

Yes on the timing John .

Bill said I think there's sort of this.

The last major obstacle out of the way here in terms of.

Completing the.

Daily diligence, we'll see what that turns into in terms of timing of the conditional approval.

On wafer supply.

I think our objective.

In the mid term on this project is to be able to source wafers in the U S. There's a variety of.

Of people looking at that.

Patients with us, but at the time that we.

We would sign the daily loan.

And gives a formal go ahead on the project, we would have all of our wafer supply.

Locked up.

That's normally the way, we handled as well as the customer off take commitments and in terms of the why now I would say that.

We have a site.

Event planned for Tomorrow, and we thought that.

Investors, who would want to know about it.

Yes.

It does it does allow us to get moving right with that we will do a certain amount of engineering and maybe some long lead time rich purchases to keep the timeline moving forward. So we can't we really couldnt unlock all of that until we hit the site.

Great. Thanks for the additional color and I'll pass it back.

I appreciate your question.

As there are no further questions. We will now conclude the call. Thank you all again and you may now disconnect.

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