Good day, ladies and gentlemen, and welcome to the Maxeon Solar Technologies Fourth Quarter 2021 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. As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host for today, Mr. Robert Lahey of Maxeon Solar Technologies. Sir, you may begin..

Thank you, operator. Good day, everyone, and welcome to Maxeon's fourth quarter 2021 earnings conference call. With us today are Chief Executive Officer, Jeff Waters; Chief Financial Officer, Kai Strohbecke; and Chief Strategy Officer, Peter Aschenbrenner. Let me cover a few housekeeping items before I turn the call over to Jeff.

As a reminder, a replay of this call will be available later today on the Investor Relations page of Maxeon's website.

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 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 have also posted a supplemental slide deck on the Events and Presentations page of Maxeon's 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 Maxeon's Investor Relations website, 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 Maxeon's CEO, Jeff Waters..

first, leading panel innovation. At the beginning of 2021, approximately 40% of our IBC capacity was 2010 vintage Maxeon 2 technology. While this product performed better than the vast majority of competing technologies, it was time for an upgrade.

We closed 2021 with more than 140 megawatts of new Maxeon 6 cell capacity, which will increase to approximately 250 megawatts by midyear when this part of the technology refresh is complete. This is a critical project for our gross margin turnaround, providing more than 20 points of margin improvement over Maxeon 2.

We'll see further margin upside in 2022 as we convert our Maxeon 5 capacity to an additional 250 megawatts of Maxeon 6 by midyear. As additional evidence regarding the superiority of our technology, we recently increased our IBC module warranty to an unprecedented 40 years.

This decision was not taken lightly as Maxeon and our customers both treat our industry-leading warranty terms as sacrosanct and a key differentiator versus our competition.

Fortunately, we have access to comprehensive field degradation studies dating back over 15 years, rigorous measurement of actual warranty claims on our products shipped since 2004, and proprietary physics of failure models to correlate and extrapolate this historical field performance with predicted longer-term degradation rates.

This data embedded by third-party experts ultimately met our high standards for increased warranty coverage. We are thrilled to be in the position to offer extended peace of mind to our customers and are seeing a strongly positive response from installers and end customers, especially in the residential segment. Now a few words on Maxeon 7.

The excitement among our Fab 4 pilot line engineers and technicians is increasing as they consistently produce our highest efficiency ever IBC solar cells, and we're on track to produce our first modules next quarter.

We expect that Maxeon 7 will further distance our product performance from the competition and enhance our pricing power in the market, particularly in conjunction with our recently announced four-year warranty. As development progresses, we're continuing to review options and the time line to fund the Maxeon 7 production ramp.

Now let's move on to our focused utility scale strategy where we are ramping our U.S.-focused supply chain and experiencing increased market traction. We started initial mass production in Mexico of our shingled bifacial modules in February and the first customer shipments are scheduled for April.

COVID-related travel restrictions and inbound component shipment delays represent a headwind for the speed of our full manufacturing ramp, but our operations teams are highly focused on the task at hand, particularly considering the strength of demand for this product.

Since our last earnings call, we executed contracts with two customers to supply over 700 megawatts of our bifacial performance line panels through 2024, bringing our contracted backlog to over 2 gigawatts. These contracts include prepayments of over $70 million.

Coincident with these orders, we executed price collars on a significant portion of BOM costs. With demand for our utility scale product in the U.S. far outpacing supply, we are investigating options to expand capacity beyond our current 1.8 gigawatts, either in Mexico or the United States, depending on legislative events over the next few months.

Outside of the U.S., our utility-scale sales team provided a meaningful contribution to our fourth quarter revenue as we recorded the final shipments to our project in India. However, we remain selective on our rest of world power plant business. Now to our differentiated DG channel. We closed 2021 with another record quarter of EMEA region volumes.

And our DG Group in Europe is off to a very fast start in 2022. The combination of megawatt shipments to date and backlog for the first half of the year at this point in the first quarter are almost double where we were at the same time in the first quarter last year.

We expect continued strong demand in our European business and are actively pursuing tactics for debottlenecking our factories and reallocating supply from lower-margin regions.

This achievement is due to the combination of a truly differentiated product married with a robust direct-to-installer channel model that has been cultivated for more than a decade.

This channel platform allowed us to ramp AC module sales from zero at the beginning of the year to over 25% of total volume in the fourth quarter in France, the Netherlands, Australia and the U.K.

Other regions, including Italy, Austria and Scandinavia, some of which launched later in 2021, saw similar initial growth trajectories, which are continuing in 2022. Customer feedback on the value proposition of a factory integrated product has been decidedly positive and supports our plans to launch storage sales in 2022.

The success of our channel model in Europe and Australia is a strong motivator for geographic expansion, particularly in the Americas. We have several exciting initiatives progressing in Latin America, and we are now increasingly focused on growing our direct presence in the United States.

While SunPower sells our product with great success in key markets such as California and the Northeast U.S., when we look at the U.S. market as a whole, we see significant opportunity for volume and margin expansion by leveraging our deep expertise in channel sales, particularly to a large number of local installers across the U.S.

who historically had no access to our market-leading products. With demand for high-efficiency solar products increasing due to competitor exits and strong EV adoption, we're very excited to be engaged more directly in the U.S. DG market. Our revised supply contract with SunPower provides us with the opportunity to launch our own U.S.

DG channel, starting with commercial this year and including residential next year. We have a lot of exciting initiatives coming together in 2022. We plan to complete the multiyear transformation of our core module business to achieve our target financial model in 2023.

And we're launching new initiatives, including Beyond the Panel that have the potential to propel us beyond these targets. We look forward to sharing our progress with all of you as we continue to execute in 2022. With that, I will turn the call over to Kai to review our financial performance..

please also see a detailed guidance breakdown in our supplemental earnings slides. We project shipments in the range of 475 megawatts to 495 megawatts. The midpoint of this forecast represents a 16% sequential decline due mainly to the lumpiness of our utility scale projects.

Specifically, our fourth quarter 2021 included the final shipments for the Ayana project and our next major project, approximately 1 gigawatt to Gemini, will not start shipments until the second quarter of 2022. DG volumes are also forecasted to decline sequentially in Q1 in certain markets, mainly due to typical seasonality.

First quarter revenue is projected to be $210 million to $220 million. European DG demand is expected to remain strong and offset some seasonal soft business in other regions, including North America.

Blended ASPs are forecasted to grow from $0.38 per watt in the fourth quarter of 2021 to approximately $0.44 per watt the first quarter of this year as calculated using the midpoint guidance of revenue and shipments.

This pricing increase is driven in part by a high mix of DG volumes, but also includes a DG-specific ASP increase attributable to March deliveries being governed by the new SunPower supply contract. Non-GAAP gross loss is expected to be in the range of $7 million to $30 million.

At the midpoint of the range, this is flat sequentially due to a more favorable product mix combined with strong demand in our core markets and offset by increases in supply chain costs and higher underutilization charges at our FERC factories in Malaysia and Mexico commenced volume production.

We expect charges related to our legacy out-of-market polysilicon contract in the range of $11 million to $13 million, which are included in our guidance for non-GAAP gross loss. Non-GAAP operating expenses are expected to be $35 million, plus or minus $1 million. Adjusted EBITDA is expected to be in the range of negative $28 million to $34 million.

Note that starting from 2022, we will report adjusted EBITDA, excluding the equity and income or losses of our unconsolidated HSPV, which is a noncash item. This way, adjusted EBITDA is more representative of Maxeon's operational performance.

Our capital expenditures are expected to be in the range of $22 million to $26 million for the first quarter, down from $37 million in the previous quarter and reflecting the reality that our large transformation projects currently underway are nearing completion.

For the year 2022, we are expecting overall capital expenditures in the range of $85 million to $90 million primarily to complete the 1.8 gigawatts of performance line cell and module capacity and to finish the conversion of our IBC cell capacity at Fab 3 in Malaysia to Maxeon plus some R&D and corporate CapEx.

That CapEx number is slightly higher compared to what we indicated last time, mainly due to the shift of some CapEx payments from 2021 into 2022. Also, please note that this number does not include any CapEx for the production ramp-up of Maxeon 7 in the Philippines.

As mentioned last quarter, this ramp is expected to require CapEx in the range of $60 million to $80 million. Less than half of this may be spent in 2022 with the remainder in 2023. We continue to evaluate the exact timing and the funding options required to support this CapEx spend as well as other growth opportunities available to us.

Also not included in our current CapEx projection are capital expenditures for moving forward with a new U.S. or expanded North American manufacturing footprint. We remain laser focused on our liquidity to ensure we are able to fund high priority and high ROI initiatives.

In addition to the increasing cost of materials and freight, working capital has been a challenge and will likely remain one due to the lengthening of supply chains, which lead to increased buffer stock levels and elevated levels of material and product in transit as well as our need for new supply chains to fuel the growth of the Company.

We have put in place and are continuing to evaluate many structural and tactical initiatives like, for example, securing prepayments from our customers to compensate for these headwinds.

The tragic events in Ukraine have brought about new and unprecedented levels of disruption in global trade and have sent energy, logistics and commodity cost skyrocketing. At the same time, clean and sustainable energy from solar panels has never looked more attractive to many potential customers.

We are determined to complete the transformation of our company that we started over 1.5 years ago and emerged from it with an overhaul technology and product portfolio, and with legacy contracts like our out-of-market take-or-pay polysilicon agreement behind us. With that, I'll turn the call back to Jeff to summarize before we go to Q&A..

Thank you, Kai. In summary, Maxeon is on track to hit our long-term financial targets, and I believe we are now well past the halfway point of the transformation.

Because of continued supply chain headwinds in the recent war in Ukraine that has increased the financial challenge of this transformation, we are navigating the current situation with heightened intensity and focus.

We are convinced more than ever that Maxeon's technology, channel expertise and ESG values are a winning combination that will drive long-term success. Now let's go to the Q&A session. Operator, please proceed..

Our first question comes from the line of Julien Dumoulin with Bank of America. Your line is open..

It's Alex on for Julien. Just a quick one for me to kick off. I mean when you think about capacity expansion, whether in the U.S.

or Mexico, I mean, what are you looking there, I guess, from, I guess, a geography standpoint, whether around policies or incentives that you might be able to get? And then what would be the timing on that sort of expansion?.

Well, thank you, Alex. So when we think about the expansion, I think one of the things that we are driving to order, getting a little bit more localized in our manufacturing strategy. So that's when we look at our U.S. market approach. Our first foray there was with Mexicali.

And you're seeing a similar thing as we ramped up our Modco in Asia to support our Asian customers. And this is the kind of move that, especially with freight costs being where they are these days, it shows you just how important that can be. As we think more broadly and longer term, is really around looking at the specific markets.

And as you said, monitoring what's going on with various trade policies. We feel we're in a good position now. We've got a great and growing infrastructure, both to serve Asia and Europe and also to serve U.S. We'll continually be on a look -- I mean look out. We are a very growth-oriented company.

And as new opportunities in new markets prevail themselves and as trade policies dictate that, we'll continue to look to respond quickly..

Sorry, it's Julian here. I just wanted to chime in if I can. Sorry about earlier. If I can just clarify your comments about the EU and opportunity there, can you just define a little bit more about what kind of accelerating phenomenon you have there? I know you addressed it in part in the commentary. And obviously, some records there.

But as you think about sort of the balance of this year here and the acceleration, I mean, you're even seeing some of your peers in the manufacturing space kind of lean in capital raises to address almost proactively the expanded opportunity set, how do you think about kind of rightsizing your capabilities against the emerging opportunity in Europe? And ultimately, how do you perceive that for yourselves, right, just against the competitive backdrop at the same time?.

Sure. I think and foremost, when we think about Europe, we think about the dealer channel that we have there. It's very pervasive, very deep, gives us a very unique approach to go direct through local dealer partners that go direct to customers.

So we've got a great foundation there that allows us not only to sell our panels at a premium, but to also move Beyond the Panel, as we've talked about in the previous calls, adding things like microinverters to moving forward here with storage in the near future. So as we look at Europe grow, we feel like we've already got a great foundation there.

One of the moves that we made, at least initially, was to move our Modco capacity that served Europe from Mexico to Malaysia. So it does get us closer. There's always a bit of a balance here between one of your factories to be somewhat close to where the raw materials are coming, but then also have them close enough to the markets they serve as well.

Right now, we feel good about that.

I think if in the future, it were to make sense for us to look at adding manufacturing capacity to Europe, much as we would in any of the markets, we would always take a quick look at that and move as quickly as we needed to, whether it be Modco capacity for IBC or even looking at putting in more deliberate production for our Performance Series products.

So again, we've got a really good footprint in Europe that's been built up over the last decade. And all the growth that you're seeing in Europe right now, we're benefiting from, as we reflected in the calls just with the bookings that we're seeing to date, 2x where they were last year and just the excitement for the growth that we have there..

So if I can expand on one of the things..

Sorry, go ahead..

Sorry, Julien, I just wanted to expand on one of the things Jeff just said about the Performance Series capacity. So as you know, on IBC, which is very successful in Europe, we've been busy to convert our capacities over to make six.

Of course, we're trying to maximize whatever capacity we have in place and get modules as quickly as possible into those markets.

But we are also in the unique position that we have that HSPV joint venture where we have headroom in terms of our off-take and taking additional performance panels from there, which is also a really, really good option in those markets that currently show very strong demand.

So in terms of our capital light model there, that's always a channel that we can ramp up as we need it..

Our next question comes from the line of Pavel with Raymond James. Your line is open..

Let me also start with Europe.

I'm curious if just in the last four weeks during the war, have there been any noticeable in call volume, sales quotes, particularly from the frontline countries, basically Germany and everything to the to the east of Germany? Has there been this kind of noticeable push to accelerate energy transition as per a lot of the political rhetoric?.

Yes. Thanks, Pavel. I would say our demand in Europe has been so strong quarter-on-quarter, we just continue to see quarter-on-quarter growth in DG. I mean some cases, almost defying a little bit the traditional seasonality that we've seen.

So although bookings have been strong over the course of the last four weeks, for us, it's not like a step function increase. I would say it's just more of an adder to the growth that we've already seen. Sure. Peter, Peter will go ahead..

Yes, Pavel. So as Jeff said, there's no question that we're seeing increased interest and demand from end customers that -- on top of what we would normally see at this part of the season anyway. I would say the broader political response, while there's a lot of discussion and interest, I think, in figuring out ways to move more quickly.

I feel like it hasn't jelled yet completely. And so I think we'll expect to see that continue to evolve over the next weeks and months, but customer interest is, for sure, strong..

Okay. That's very helpful. In the -- in China, I remember a year ago and I think even in 2020, you mentioned that pricing domestically in the Chinese market was so strong that the joint venture had no export capacity, everything was going for domestic sales.

Can we get an latest sum up?.

We're still seeing essentially the same dynamic. As you see elevated supply chain costs, the response to supply chain cost increases from China happens much more quickly than you see it overseas. So that overseas lag still persists.

And although we are -- we do continue to look for opportunities, we do have a long a long pipeline of opportunities to go after overseas, and we did speak about the one deal we had within India. We'll continue to look for those.

But I would say, at least here for the near term, until we get past this big supply chain risks that we're in now that you would expect to see it more towards China..

And what I would add to that -- this is Peter that I think your comment was based specifically -- or I took it to be specifically more about the power plant, the large-scale business. We are selling an increasing amount of product from that joint venture into the DG business globally.

And as you'll see from the slides that we are -- we posted a significant fraction of our DG businesses is using product from HSPV..

Okay. And lastly, fair to say that plans to build manufacturing footprint in the U.S.

still on hold pending clarity on Washington, correct?.

That is correct. I would add a little bit of color in that the demand that we continue to see for our product based on who we are as a company, but also the differentiated nature of our product is very strong. And although we are still hopeful and very engaged in pursuing a U.S.

option, assuming that SEMA comes through, and our loan guarantee comes through as well. We're still -- I would still say optimistic on that. In the event it doesn't, we are also looking at expansion in Mexicali.

We think it's important for us to expand because there is a very strong appetite for our market, and especially in a market that's willing to pay for the value that we bring as a supplier..

Our next question comes from the line of Philip Shen with ROTH Capital Partners. Your line is open..

Congrats on all the recent contract wins and your prepayments. And Jeff, I think you were just talking about expansion in Mexicali. And based on some of the checks we've done, it sounds like you might be sold out in '22 and '23.

So I was wondering if you can comment on that, is there available product for customers? And then from a pricing standpoint, I was wondering if you might be able to share a bit of the terms.

Do you think you're pricing at a premium to the Southeast Asia suppliers? Or do you think you're pricing at a discount? I mean, you have the benefits of much more clear freight cost cuts, and it's from Mexico. And there are a number of other advantages.

So I was wondering if you're charging a premium for that? And if you're not, then why aren't you?.

Sure. Thanks, Phil. And yes, it's fair to say that we are not completely but essentially sold out for 2023 in 2022. We are already beginning to take orders for 2024. From a pricing perspective, I'd say we must certainly get a premium from what we're seeing out in the market.

And a lot of that comes from -- again, from who we are as a company, from our product technology and also where we sit with the factory in Mexicali. What we've been doing to really to help kind of shore up our margin projections in that part of the business. The first is to secure business at very healthy pricing.

So even when we look at where we see the potential for the market and applying some risk on supply chain, we still have good business that we're booking when we get out into '23 and '24.

We're also, where we can, we are trying to put in some controls around cost, so working with key suppliers on some of the bigger parts of the bill of materials costs for us and help lock those in or a minimum help tie them back to market indices. So, we feel good about that part of the business.

And like I said, it is the kind of thing that has us bullish in the future on adding more capacity..

Yes. What could the timing of that be? What else would you need to see to get confidence around that? I mean you already sold out for '22 and '23.

And so are you just about there? And what kind of -- how much more expansion could be?.

Well, I think we feel like we're on the cusp, maybe here within the next two to four months of really understanding what's going on with SEMA. So to an extent, we're really looking at -- hard at SEMA. We're going through and basically preparing for a semi pass and for us to get the loan guarantee.

We are already down into final site selection for plants. So we're gearing up so that once we get a green light on SEMA, we would move quickly into building that U.S. factory. I'd say once we get some clarity around that, that would then dictate for us how we would think about expansion, whether it be in the U.S.

or if SEMA doesn't happen, we would be strongly considering Mexicali..

Right. So basically, the expansion of Mexicali is predicated on what happens with SEMA and the U.S. bill.

Is that fair?.

It is fair. And I would think about it, too, that we're -- I think one of the things that we've learned as a company is it's important to -- especially in the utility scale space for cost to be cost competitive. It's really important for you to go out and build the right scale. So we're not talking about small hundreds of megawatts facilities.

These are multiple gigawatt facilities when we look at adding the capacity. So yes, fair to say that we'll wait until what we hear from SEMA. And then you'll see us move forward or pivot as appropriate..

Got it. As it relates to your pricing, it looks like it may have moved up from $0.39 in Q4 to $0.44 a watt in Q1 based on the midpoint of the guide. But that's only one month of benefit from the new SunPower contract.

Can you break out the Q1 ASP margin uplift from the SunPower contract? Could we see possibly $0.50 for an ASP in Q2? And should we see further sequential increase in margins in Q2?.

Yes. Maybe I'll give about comments and then Kai, if you'd like to add some color, please do. I'd say that first, what you're talking about the ASP increase, that is a blended ASP increase.

So certainly, the prices that we get on our IBC product in DG are demonstrably higher than what we get in the utility scale space, even though we are seeing, I would say, very good pricing for our Performance Series channels and utility scale within the U.S.

I really wouldn't want to go into any more detail around our pricing, certainly, especially as it relates to SunPower. What I would say is that, that agreement that we did with SunPower, I think was good for both companies.

For us, it did allow us to get our -- with the renegotiation of our pricing up to more market rates for 2022, at least for the last three quarters. And it also gives us the opportunity beginning in 2023 to address the U.S. market.

And in there, when you think about SunPower, a big player in the U.S., but there's still a good 90% of that market that they don't address. And when you think about some of the competitors in the premium space who have dropped out, we see expansion in the U.S. as being a great growth motivator for us in 2023. So, we're really excited about that.

And certainly, that would also have a positive impact on ASPs when you look at it at the corporate level..

So just technically Phil, just to add here, this is Kai. So you're right, it includes March -- the first quarter numbers include the new contract starting from March and that gives a bit of an uplift.

But also, as Jeff mentioned, there are other factors that are also going on the general product mix because we have less power plant in the first quarter and more DG in general. And then it's also true that then in the second quarter, we should see the full quarter impact of that, but we're not giving any specifics on that..

Okay. And then as it relates to the margins on the Mexico facility, I was wondering if you could share -- I mean, Jeff, you talked about a premium in pricing.

Can you share roughly what the margins look like there? I mean, we know what the corporate margins are, but are you double-digit percentage margins there potentially? Or how does that look?.

Well, the way to think about our margins on that business, we've talked about how when we see that business scaled up, the factory scaled up, that we will be achieving our corporate target margin or greater I think 15% in that range or better. Now over the course of 2022, we are scaling up factory. So you've got a lot of employees, operators on board.

You are working through the scale-up of the factory so you're not producing at full capacity. So costs are at their highest, especially in the first few quarters. So we're not going to get to 15% on day 1. I wish that were the case.

But everything that we're seeing with our cost projections going forward, still tell us that with the pricing we have that this is a good business that fits the vision we have, which is a 15% plus gross margin business that will add a lot to the top and bottom line for us as a company..

Great. And one last one. As it relates to anti-circumvention, it looks like the case should be decided tomorrow. I mean there's a small -- there's a chance that it gets put in.

But what I recall is you guys are not roped into that risk, just I think it might be useful for everybody to hear how you guys are or are not implicated if the anti-circumvention two case gets taken on by the DOC. So wanted to just -- I'll turn it back to you guys, but it would be helpful for everybody to hear..

Peter, why don't you comment on that?.

Yes, Phil, we're not named in the anti-circumvention complaint request. And we think it's extremely difficult to make a case an anti-circumvention case around SunPower and Maxeon. We've been in the same spot there in Malaysia for over a decade. So, we haven't gone anywhere or changed our operations.

So, we'll have to see how that goes, but we don't think we're in the center of the target, let's say..

Yes. I would just add to that, that I would say no one has ever accused us of selling panels below markets or dumping in the markets. We definitely play at a very high premium relative to the competition..

Right. So between the premium and the length of time you've been there, you really shouldn't be a party to the case. That said, the case would be countrywide.

And so ultimately, if this does get taken on by the DOC, and they render a decision, then it would be up to you guys to make sure that you're carved out of that, whatever the final decision is by the DOC.

Is that the right course of -- the right path of events?.

Yes. I think we'll have to -- again, we'll have to wait and see how this investigation goes. I would not expect us to be a major component of that going forward..

Our next question comes from the line of Brian Lee with Goldman Sachs. Your line is open..

Most of mine have been covered, but maybe just a quick housekeeping one to start off on the DOE loan guarantee.

Can you kind of provide us an update on where that stands, maybe next steps in the process, any kind of expectations around timing?.

Yes. Brian, this is Peter. We are in the process. The next steps are detailed diligence and negotiation of the loan guarantee itself. We expect that process to be multiple months. And so we're continuing to work through it..

Okay. Fair enough.

And multiple months in terms of expecting a final decision yes? Yes -- no or multiple months here to kind of get to the next step in the process?.

Multiple months before the end of the process, which is a determination on the extension of the loan guarantee or the loan itself and the signature of an agreement..

Okay. Fair enough. And then maybe just on that topic. Outside of the loan guarantee, how are you guys thinking about liquidity needs here? I know the CapEx budget for '22 is not that robust. And a lot of the capacity expansion TBD based on SEMA and the loan guarantee.

But just as you think about the margins here as well as some of the working capital commentary you made, is there any updates you can provide around how you're thinking about liquidity, just what sources outside of some of the prepayment strategy you mentioned.

Anything else you're considering from a financing standpoint?.

Kai, why don't you take that one?.

Yes. Thank you. And certainly, thank you, Brian. Yes, I think from a liquidity standpoint, as you have seen, we are pretty pleased with the cash balance at which we ended the year that has already been there a lot of the CapEx that was needed for our current transformation. We spent about $154 million in CapEx in 2021.

So the heavy lift is really behind us. And you have seen that the baseline CapEx budget to get all this done in 2022 is pretty moderate of $85 million to $90 million. But as you point out, there are other growth initiatives that we have in mind the most maybe concrete one, and that is really in our control is Max 7.

And Max 7 Is making really, really good progress, both in the pilot line in the Philippines as well as in R&D. So we have yet to decide on the funding for that particular initiative. And there is, of course, a variety and range of options out there that we continue assessing.

And I would say, in general, the same is true for any other growth initiatives that we that we see out there, including the U.S. footprint, which would come to a large part with the loan guarantee if our application is successful from the DOE, but also some more financing possibilities that we probably have to put in the next year..

Okay. Fair enough. Appreciate that. And last one for me. Just -- I appreciate the color, Jeff, around be sold out effectively for '22 and '23, and your pricing strategy sounds like in real time, you're getting more aggressive proactive.

But as the cost environment and have continued to escalate, I think things like aluminum and logistics, we've heard from some of your peers, starting to pinch margins here in the near to medium term.

What are you able to do to kind of mitigate that on existing bookings, not necessarily the ones you just reported today and the ones that you've been seeing better pricing on, but the ones where you're allocated to deliver the next 6, 12, 18 months and cost has moved up quite a bit.

Are you going back and actually renegotiating pricing? Are you did you have contingencies in place on some of the costs where you can do that? Or what's sort of the strategy on some of the backlog here?.

Yes. Thank you, Brian. I would say if and where there are -- there is flexibility in our contracts to adjust pricing, we would have those conversations, and that's true in the DG space as well as utility scale.

I think as you know, typically within utility scale, because of the nature of the end customer, it's tough to have that kind of flexibility in there.

So what we've done, in addition to getting, I would say, very good price premiums is we've really worked more on the supply chain and really try to target the more significant pieces of the cost structure to put in some contracts so that we can lock in pricing better.

So if you look at our input costs -- and one thing I would say around that is even if you look at it from a freight perspective, it is just by having our factory like Mexicali so much closer to where customers are that really helps mitigate some of the freight concerns that we have.

But there are other significant input costs that we've been able to work with suppliers in more of a strategic way and come up with some collars around the costs that give us the ability to stand by the pricing that we negotiated and to live up to our contracts like we always do as a company..

We have a follow-up question coming from the line of Julien with Bank of America. Your line is open..

Sorry, just to clarify this. you were talking about being sold out here, can you talk about the P-Series, if you don't mind, in terms of just kind of leaning into that opportunity here, especially as the world looks sets to really need some of this incremental capacity over -- maybe not just this year, but leading into next.

How are you thinking about kind of leveraging that over time here? Are you kind of alluded to it broadly earlier, if you don't mind, if you can elaborate?.

Sure. We think about it in two ways. First, the joint venture we have with the HSPV joint venture we have with is great in that we've got access to a lot of capacity out there. So as the market demand grows and as pricing begins to equilibrate we think that opens up a lot of opportunity for us.

And the capacity in the JV, I would say, just continues to grow, so a lot of flexibility there. And again, it's not take-or-pay. So if good business isn't there, we don't have to get ourselves in trouble. The other piece is on the U.S. side because HSPV producing in China serves pretty much everywhere except for the U.S. market. So, for the U.S.

It is -- the first foray into this really was our converting a good portion of our Malaysia fab over to mono PERC cell production. We just did a bunch of things. First, it gave us a good reliable non-China supply of cells. The other positive, though, is it filled up that factory. And that's a factory that has long been underutilized.

And as you know, that just adds to costs. So a great win for us there. We then opened up the -- we then converted our Modco in Mexicali over to Performance Series. And again, the benefit there was twofold.

The first was that it allowed us to now take the capacity of the module capacity there that was going to customers in Europe and Asia and to actually move that capacity over to Asia, so helps with freight and a variety of other pieces. But right now, we've got that, what will, at full scale, be 1.8 gigawatt with that Malaysia Mexicali combination.

We see a lot of opportunity to grow before we talked about our intention to add 3 gigawatts of capacity. We -- I would say that the thought process has been that if we could do that in the United States, we think that will be a really nice strategic adder to what we do as a company.

To do that, as you can imagine, there's a significant cost and price increase to produce in the United States, so we need CIMA. And again, we're hopeful with CIMA. It does have just fundamentally, it has good bipartisan support. It is, as you know, bundled in with a lot of other things that are a little bit more contentious across the aisle.

But as soon as we hear a positive on CIMA, we think a closure on the DOE loan guarantee. And we're ready to roll with U.S. production. In the event that doesn't happen, we're in a really good space in that we've got a knowledgeable footprint in Mexicali. We've got room for expansion there. So we would look to scale up there pretty quickly.

And another benefit there is that we've done that scale up in Mexicali already. So adding the additional capacity is now going into a group of hands that are much more experienced than they were the first time.

Peter, do you want to add?.

Julien, let me just add one thing about the joint venture and the rest of world demand. As you might imagine, the big increments of capacity that's been brought online there recently, have been using the large G12 wafer format that TCS really pioneered a couple of years ago.

We're in the process of transitioning our DG product offer to that new larger capacity, those increments -- large capacity increments based on the G12 wafer format. So that's going to unlock bigger chunks of available capacity for us to deploy into the DG market in the near future..

Got it. But with respect to the JV, not meaningfully ready to talk about ability to market rest of the world, as you said..

I'm sorry, Julien, could you repeat the question?.

Yes. Just the expectations on rest of world demand, Peter, as you were alluding to a moment ago, just on just the -- leading into the demand on that front. It doesn't sound like you're ready to kind of commit to any kind of level of utilization despite the expansion of the capacity quite yet..

Yes, that's a fair comment. It's -- as you know, it's very dynamic. And especially the overseas utility scale business the margins are leaner than they are in the United States. So that margin buffer is much more sensitive to costs.

And I would say right now, given the volatility that we see in that market, it's we're better deploying those panels into China through the JV, and we're better, of course, still continuing to grow our DG growth with Performance Series given that there's much more of a margin buffer there as well..

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day..