Good day, and thank you for standing by. Welcome to Maxeon Solar Technologies' Second Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Mr. Robert Lahey of Maxeon Solar Technologies. Sir, you may begin.

Thank you, operator. Good day, everyone, and welcome to Maxeon's second quarter 2022 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 6-K 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.

Thank you, Rob, and good day, everyone. Today, I'll provide a detailed update on Maxeon's ongoing transformation and our progress toward achievement of our long-term financial model, and Kai will review our financial performance and outlook, and we'll conclude with Q&A. First all, I'd like to acknowledge the recent passage of the Inflation Reduction Act and what it means to Maxeon. We couldn't be more pleased with the results of this legislation after more than a year of consideration in Washington. The investment tax credit extensions are a new long-term tailwind to both our utility scale and DG businesses. As a reminder, we just reentered the U.S. utility scale business in 2021 and have already booked nearly 3.5 gigawatts per day. And on the DG side, we commenced shipping directly to commercial installers last quarter and are launching our residential channel later this year. We are also pleased to see increased support for electric vehicles, which should expand demand for more efficient and larger residential solar systems, a category where Maxeon has been a leader for decades. And last but not least, as strong supporters of U. S. domestic manufacturing, we were thrilled to see inclusion of the key provisions previously proposed under the Solar Energy Manufacturing for America Act, known as SEMA. We believe the direct pay incentives and potential for domestic content ITC bonuses provide a strong catalyst for U.S. solar manufacturing. Maxeon is very well positioned to implement the objectives of this legislation. We spent over a year preparing for exactly this scenario and are well down the road with respect to site selection, facility design and financing. Our proposed 3-gigawatt facility has the potential to drive significant top and bottom line growth for Maxeon in 2025 and beyond. We have reignited our project team to full…

Thank you, Jeff, and hello, everyone. I will discuss the drivers and details of last quarter's performance and then provide guidance for the current quarter. Second quarter shipments were 521 megawatts, exceeding our guidance range and growing 7% sequentially, thanks to exceptional delivery efforts to European customers and the initial shipments into the U.S. utility scale market, which commenced commercial deliveries in late April. The majority of our European shipments this quarter were Performance Line products from our HSPV joint venture. We also saw an initial contribution from the new North American Performance Line facility. Total revenues exceeded our guidance range as well, and we're also up 7% on a sequential basis to $238 to $238 35%, mainly as a result of increased Performance Line volume. Revenues benefited both sequentially and year-over-year from price increases in DG markets, including the United States, where this was the first full quarter of the new 2022 SunPower pricing. ASPs for DG grew slightly on module price increases in Europe as well as a growing amount of non-panel revenue. On a blended basis, overall ASPs were flat sequentially due to a higher mix of Performance Line shipments in both DG shipments in both DG and utility scale. While IBC volumes are expected to grow in the near term as the conversion to 6 is completed, we expect to see a similar overall ASP trend going forward, with price increases and a higher mix of non-panel sales, offset by a growing share of lower-priced Performance Line volumes. Non-GAAP gross loss came in at $24 million. Second quarter headwinds impacting gross loss included $14 million in ramp-related capacity underutilization charges and $7 million in lower cost or market provisions for quarter end inventories of our Performance Line products for the U.S. market. Our gross margins continue…

Thank you, Kai. Next week, Maxeon will be celebrating its second birthday and what amazing two years it's been, two years of continuous and significant investment for the future. We've upgraded the majority of our products. We've closed unprofitable plants, ramping new capacity and progressing to fully utilized factories. We're within months about lasting a decade-plus out-of-market polysilicon contract, and we're doing all of this during a tumultuous industry environment. We've been consistent over the last two years in saying that by mid-2022, and we'll have the majority of the foundation set for a financially successful Maxeon in 2023. One poised to reach our target model of over 20% revenue growth with EBITDA margins of 12% or greater. With a few more quarters to go in the turnaround, our recently bolstered balance sheet and with the future that we expect to include U. S. manufacturing, it continues to be an exciting time to be at Maxeon. We appreciate you all joining us on this journey. Now let's go to the Q& A session. Operator, please proceed.

Thank you. Our first question comes from the line of Julien Dumoulin-Smith with Bank of America.

Hey, it's Alex on for Julien. Congrats on the quarter here. I wanted to ask a little bit more, and obviously, I think one of the headlines people are watching closely here. Around this expansion effort that you guys target in the U.S., if you could give any clarity as far as the timing that you might expect as well as the credits that you would think that you're eligible for, I know that there's a lot to unpack between some PTCs as well as possible as possible ITCs for some of these solar panel or manufacturing for some of these solar panel or manufacturing clarify on that timing as well as the credit availability. Thanks.

Sure. Thank you, Alex. This is Jeff. So maybe just first to describe it at a higher level, we're -- we feel we're in an excellent position to help drive the kind of the reemergence and resurgence of the U.S. solar supply chain. We are right now, as we speak, cutting our teeth on the first scale up of close to 2 gigawatts of capacity out of Malaysia and Mexicali. That's really giving our teams the learning curve and the capability to do the next generation of scale up for us, which we're expecting here to be in the U.S. market. And we've also, through this process, established a really proven U.S. friendly supply chain. We're shipping dozens of shipments a week into the U. S. So we feel real confident with that. And we've also got tremendous demand because of who we are as a company and the supply chain. So when we think about this next phase, part of this is the DOE application. We've got a real strong application that we feel fits the administration's goals for the program, so we have good confidence there. We expect about six months for the loan guarantee to come through. And then once that concludes, about two years from that to first production. So you can think about kind of early 2025 for us to producing. When we think about the credits, I guess, first, our expectation would be that we would meet all the requirements for the -- both the fab -- the cell fab credit of $0.04 per watt and also the Modco credit of $0. 07 per watt. And when it comes to other things around the ITC adder for domestic content, our expectation there is that we're kind of piecing it through. We will expect the details to get finalized here over the coming months. But obviously, our goal will be to do everything we can to meet those domestic requirements and help maximize the ITC adder.

Great. And I think just my follow-on, if we can sort of, I guess, focus back a little bit to the near term. As far as the margin guide for 3Q, I know you mentioned $40 million of year-over-year headwinds as far as supply chain. And I think you mentioned last quarter, you were trying to sort of reprice some of your contracts, particularly at the utility scale level to account for some of that. So I mean, if you can give us just a little more color on like what the moving pieces are there as far as how successful your efforts were on repricing, what the headwinds you're seeing today are and then how we expect that to evolve into the end of the year and the EBITDA guide that you gave for '23?

Okay. So I'll speak first on some of the repricing efforts, and then I'll hand it over to Kai to provide some more details on some of the other contributors to margin improvement. So first, I would say that we've been very happy with the customers that we've taken on with our utility scale business within the U.S. We have been able to secure a handful of very strong professional just great companies with great leaders and really have built up some good collaborative relationships. We are working through some of the contracts, I would say I'm optimistic. We're guarantee anything nor have we put any of that going to be able to restructure some of those contracts in a way that will be favorable to us. So I'd say good progress there, but nothing yet to report. Kai, do you want to expand on kind of more broadly on margin improvement?

Yeah, absolutely. Thank you, Jeff. Alex, this is Kai. So in terms of the margin improvement, we put a few markers out there. Obviously, we said that on the DG side of the business, we are already gross margin positive today. We also mentioned that we are targeting an overall gross margin breakeven for Maxeon in the fourth quarter. So that's kind of the first marker in the ground and the third quarter margin guidance is really kind of a way point to go there. As we think about that improvement, there's further improvement on the DG side expected. We are expecting higher -- we have been increasing prices. So we're expecting higher prices to report next quarter on that side. We have higher volumes on Maxeon 6. But also on the power plant side, as we are ramping that facility, we expect reduced idle costs, we are expecting still some lower of cost or market provisions because of the low prices at which we are currently shipping those products. But all those things should be improving overtime. And then as we are going into 2023, we see further tailwinds there on the U.S. power plant side as we shipping the higher price later bookings for capacity as well as starting to fully utilize that capacity overtime in 2023 and on the DG side of the business, we would expect more shippings also from HSPV P-Series into the various DG markets, which are really, really strong markets right now in the foreseeable future as you know. And also, we expect beyond the panel offerings to take a bigger share of the DG business. And last but not least also our further entry into the DG space in the United States, which we are starting to gain a foothold there and expand from there.

Thanks, team. I'll take the rest offline.

Thank you. Our next question comes from the line of Donovan Schafer with Northland Capital Markets. Your line is open.

Hi, guys. Thanks for taking the questions. I just want to follow up. Yeah, I just want to follow up on Alex's question about, you kind of renegotiating those contracts the fixed price ones for the power plant features modules. So I guess I'm just curious from a timelines to standpoint -- yeah, there's always some the concern, and we just have to be kind of prepared for it and aware of it low gross margin contracts. So hypothetically speaking, if that were to the contracts had signed, were not renegotiated into a more favorable way. How long would the impact persist? I guess instead of asking, when would those contracts that maybe don't look quite as great right now? When would they? How far would they extend? And then where they wrote would roll off? Any color there that'd be helpful.

Sure. Thanks, Donovan. Yeah, as we've said in the past, these were the very initial contracts that we took for the business. So these would have been priced back in early 2021, when it was a very different supply chain market with different expectations for 2022, and '23. So the way you should think about them is that those lower ASP contracts would be done within 2023. And when you then -- as we've also been reporting, I think, since then, we've been getting pricing that is more in line with where the market is today. And as well, more recently, we've been doing contracts that are cost indexed. So we've evolved and I think when you think about 2024, and beyond, you'll see much less margin exposure than maybe we had with some of the very initial contracts that we did.

Okay, that's great. And then I also want to ask, so for ASP uplift, going from Maxeon 5 to Maxeon 6. Is there any way you can kind of quantify what the incremental, premium, and maybe cents per watt, you're able to get? Or I know, an important part of these technologies is also lowering the cost associated with making, what is still a premium product. So or and or sort of what their gross margin improvement would be maybe the incremental sort of margin per watt cents per watt you can get through this Maxeon 5 and Maxeon 6? And just for simplicity, yeah, maybe just -- because I know you're the mix is going from like, 50%, to 100%. But let's just focus on like panel-to-panel, apples-to-apples. So for what, one Maxeon 5 panel versus one Maxeon 6 panel?

Sure. I think the way to think about Maxeon 5 and Maxeon 6 is essentially same technology. It was just minor bump up in -- kind of a minor bump up in wafer size. So the overall performance of the panels and the specs of the panels are similar. Really as you intimated though, it's really more around for Max 5 versus Max 6. So that's what we saw there. And I'd say even same really about to Maxeon 6 and Maxeon 3. Maxeon 3 is still also a very good competitive technology that provides good industry-leading efficiencies out in the marketplace. And Maxeon 6 provides a cost reduction relative to that. When we think about Maxeon 7, really, you've couple of pieces there. The first instance of Maxeon that was to be not really so much about cost reduction, as it is going to be about a significant efficiency improvement but also about adding additional features like elimination of hot spot because of the architecture of the cell. So it's for us -- it's not just about efficiency. It's about how long our panels stay out in the marketplace with the industry-leading 40-year warranties with a much lower degradation with -- what the competition has. But from generation-to-generation from Max 3 to 5 to 6. And even with the first instance of 7, it's more around. I would say the first three to six has been more around cost reductions, or two to six been more around cost reductions, and seven is when you'll really see a performance bump.

Okay. And then actually, on that topic, you guys have talked about the kind of your best ever efficiencies coming off the pilot line for Maxeon 7. And I know you maybe not at a point where you're ready to quantify that and share those numbers with us. I mean, if you are that, that'd be great. Yeah, please do. But, but I guess is there a sort of a timeline of when maybe you're waiting to get a third-party certification or anything, and just wondering, or if that's something maybe you guys plan on sharing with us during the Analyst Day? Just kind of the timeline on when we could actually know what those the efficiency improvements are?

Sure. So at the Analyst Day, we will provide probably more insight into Maxeons. So you can expect to see that there. I would say, when it comes to third-party verification, I think one of the things that certainly sets us apart is that when we talk about efficiencies that we're achieving, it is on cells that are going into hundreds of thousands of cells per day type volumes, it's not something that we're doing in the laboratory, I think we've established credibility over the decades in us being able to when we talk about our efficiencies and performance, we're achieving that it really is something that will be at the at the production level. What we've talked about, and I'll just reiterate is that we continue to see in our labs, and on our pilot line, which is a replica of what will happen in high volume production. But out of those lines, we are seeing record cell efficiencies. And we're putting together panels that will create record panel efficiencies. And so you can look at where we sit a with our Maxeon 6 panel as an example. And just know that we're going to do that, how much better gets that will probably give more insight into our Analyst Day that we have coming up.

And just on the production line question, you said that you are hitting targets at the pilot line. I'm just curious if you can tell us kind of what attribute you're talking about there? Is that running the pilot line at a faster speed than you are? I know, you're a half speed, I think, on the last call, as it increasing that speed and having higher yield panels coming out or what's what are they attribute or metrics or you're saying you're seeing you hit targets there?

Yeah. What I was referring to there was more around the efficiencies that we're producing. So the actual panel performance with respect to that. That’s seeing a record performance.

Awesome. Okay, I'll take the rest offline. Thank you, guys.

Sure. Okay, thanks, Donavan.

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

Hi, everyone. Thanks for taking my questions. First one is a follow up on the next leg of capacity expansion. I think, Jeff, you mentioned that the 3-gigawatts of solar module could come online early 2025. I just wanted to explore that a little bit more, would it be possible that it could come on line a fair amount sooner than that? When we think about historically, mod lines take about a year to bring online and maybe six months -- even six months a year and then still might be about a year. So do you think it could actually be sooner and if so, how much sooner? And then as it relates to the next facility, to what degree are you guys contemplating another three gigawatts, there's really, a law is passed now and there's a very clear path. Of course, the IBC either domestic content matters not as clear. But is very clear as an incentive. And so are you guys very much contemplating already, that next 3-gigawatts or larger facility? Thanks.

Sure. So first, I would say we're not ready to commit to anything earlier than what we stated around early '25 of the beginning of production. What I would add though to what you said is that it really is us needing to construct a new facility to house the cell fab and modco. And that's part of what makes it not a one-year turnaround. If you look at the current 1.8 gigawatt that we have, with the modco in Mexicali and the fab in Malaysia, that fits roughly what you were saying. We were able to get those up and running and first production in about a year's time. A little bit longer of the delay here. We'll be doing construction within the U.S. to house that new facility. So that'll be the comment I'd have on that. I think in terms of additional capacity, certainly there is demand that's out there. Let's say for where we sit today, we're not ready to announce doing more than what we've already stated. But certainly, we will continue to talk with customers, take a look at our at our progress as it comes along with this first capacity that we're going to be building out and we'll be ready to adapt and to proactively jump, if we believe that more capacity beyond what we've talked about makes sense.

Thanks, Jeff. Shifting over to your DG business. You announced the partnership with CD recently. And so, I was wondering if you could remind us when you expect those volumes to ramp up? I think it's back half this year or soon. And then how much volume do you think CD could have in 2023 from a megawatt standpoint? And then additionally, when you think about the potential for another distributor, are you working through that now, is there potential for get more partners on near term as it relates to distribution? Thanks.

Sure. What I would say is first we are -- with CD, we start shipments in the beginning of 2023. So January of 2023, we will be in shipments to CD. And to I think your third question with CD, they're the biggest in the U.S. As I know you're aware, we're very happy with that relationship, we see them as a as a great partner. So our expectation is to really focus and be a great supplier to them, along with continuing to be a great supplier into SunPower. We really do see CD and SunPower is being very complementary. And that SunPower with their unique channel model that understands our product knows how to sell the premium elements of our panels, they'll continue to be great customer for us. So we're very happy with that relationship. CD, really allows us to go after the other 90% of the market that's out there that to date has been served by the likes of LG and Panasonic. And, there's a big chunk of the United States that's really looking for Maxeon panels. So we're excited to start that relationship. In terms of the amount of volume that we could forecast, that's not something that we're going to be talking about publicly about the kind of volume we could free up, what I will say is that we are looking at doing a variety of things to I would say kind of re-partitioner or redistribute supply that we have from maybe other markets that are less margin attractive, and to funnel them into the U.S. So we're trying to find, I would say as many panels as we can out of our capacity to be able to supply the U.S. market. Now that said, we've got other great markets we serve. Europe is a phenomenal market, Australia is a phenomenal market. But there are some markets like take some of the commercial markets outside of the U.S. can be maybe a little more challenging from a margin perspective, so you could expect to see us shift more of the IBC volume into U.S. resi.

Great, thanks for that detail. And then finally on liquidity. You guys -- congrats on the convert and the raise there. What's your sense as to whether or not you might need more? And if so, would that be driven by the current 3-gigawatt cell and module facility decision? Or do you think you would -- like your sufficient -- you have sufficient liquidity for that capacity? And then if it's a decision for the next 3-gigawatts, that's really what would trigger the next leg of potential capital? And then as it relates to the convert, what percentage of that would you expect to pay in cash every six months? It seems like there's some variability in the release, in the 8-K, or 6-K. Do you expect to pay half of that 7.5% in cash or all of it or maybe none of it? Thanks.

Okay, I'll defer the majority of that answer over Kai. But first, I will just say that we are obviously very happy with the $207 million convertible that we're able to do with TZE. We think it's a sign of the competence that they have in the business and where the business is going ahead and the potential that we have. But let me turn it over to Kai, to answer some of the more detailed questions you have.

Yeah, thank you, Jeff. Hi, Phil, it's Kai. So in terms of, of course you're seeing the terms and conditions and we think they are very competitive and it bolts off the balance sheet and gives us the ability to do the Max 3 to Max 7 conversion in the Philippines and Sonata as we previously said, among other things. So that's really, really good news here to get that done in a timely manner for that. And you have also seen that the market reaction has been very positive on that. Let me take the question first with regards to the interest. Yes, it's true, 3.5% of the coupon needs to be paid in cash and there's other possibilities to pay the remaining 4 percentage points. We haven't really made up our mind yet the first payment is six months out. I guess we'll make a decision on these things on a payment-to-payment basis based on the circumstances at the time, but the overall coupon is 7.5%. And you can maybe just pencil in as an assumption that it's paid in cash, but we'll make decisions as we go. With regards to the funding, how long does -- how far does that take us? We have said before that the use of proceeds is going to be Max 7. In addition, it puts liquidity on the balance sheet that we can use for different things. Will it be enough for the U.S. expansion? Likely not. We need additional funding for that because that's a lot more than what we have raised. And of course, as you know, we are expecting that the vast majority of that funding would come from the DOE loan and also arrangements with customers, which have very high demand for that kind of capacity. In addition to that, we always are evaluating a range of options for these kind of growth investments. We are a growth company in a growth industry, and there's always lots of opportunities, and we also believe there are many options at our disposal to execute at the right time, given circumstances and opportunities at that time.

Great. Thanks for the color Kai, and Jeff. I'll pass it on.

Thanks, Phil.

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

Hi, thanks for taking the question. This is Grace on for Brian. I guess my first question, just to follow up on the questions on margins. I appreciate all the color in the prepared remarks and the Q&A. Just trying to bridge the gap from like today's gross margin of negative like 5% to the 15% gross margin target in '23. I know you talked about like drivers like Maxeon online and then also like the ramp-up of the U.S. utility scale shipments. I just wonder if you can put some numbers around those drivers, like how many basis points should I expect from like, for example, like the ramp-up of the utility scale shipments in the U.S.? And also, like what kind of margin ramp should we expect in '23? Thanks.

Kai, well, I hand that over to you.

Sure. And thank you, Grace. So overall, I think we have -- or Jeff has said in his remarks that for the DG side of the business, we are expecting more than 20% margin as part of those 15% target. And the way we are going to get there is with some of these items that I mentioned in the previous discussion here. And then, of course, there's the power plant side, which at the moment is negative gross margin, and there's also lots of dynamics that I described before. With regards to quantifying all those, we haven't really quantified them yet. We are planning to give more color on these different items. And I would say their relative contribution to that development at the Analyst Day. So please bear with us until then. But I think the main points and dynamics we have laid out here.

Okay. Understood. And then on your capacity expansion plan, I think besides this 3-gigawatts in the U.S. for your Performance Line, I think in the past, you talked about a potential of 2- to 3-gigawatt of capacity expansion for your IBC line. Of course, that was depending on funding optionalities. But now you got IRA, how is that going to change your capacity plans in terms of both timing and size? Thanks.

Just first, and Kai, you can add more color, but I would say that what -- our first priority for Maxeon 7 is to do the conversion from Maxeon 3 to Maxeon 7. So you can think about that as the capacity that we have in the Philippines Fab or Fab 4. And I would say, for any additional capacity adds beyond that, it really would come along with the improvements that we've talked about with Maxeon 7 with the rearchitected metallization back end of the product, which will reduce both the CapEx and the COGS of that product pretty significantly. So that will really be what really unleashes us moving into more capacity expansion. I don't think we're prepared today to talk about that in any detail. But Kai, anything I've left out there that you'd want to add?

No, nothing really to add.

Okay. Thank you.

Thank you, Grace.

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

Thanks for taking the question. You talked a lot about U.S. and European markets. Let me touch on Asia-Pacific. The only slice of your revenue mix, which was down a tiny bit in dollar terms versus a year ago. Is that a lack of demand? Or are you deliberately reallocating volume to regions with even greater demand?

Yeah, great question, Pavel. I would say it's a bit of a mix of both. I would say, first, as we said, we are reallocating our demand, and particularly our IBC demand to markets where there is higher margin potential. And just with the surge of demand that we have in the European market, that's meant some reallocation. But you're going to see, I would say, similarly in 2023, given the surge that we're going to have for the U.S. market, too, you'll see a more shifting of that. The other piece though with Asia-Pacific is we do have a fairly lumpy rest of world power plant business, as we refer to it, and that is taking the Performance Series product out of the joint venture that we have out of China. And there, I would say we're following the same model that we've been talking about now, I think, for well over a year, which is that the output, there is no take-or-pay element to that joint venture or what comes out of that 8-gigawatt factory. And as long as there is a market in China that can command better ASPs than what we can get outside of China, we'll continue to pursue that. So what you probably saw a year ago as we would have had some revenue from some of the Asian utility scale business we have that we've not been refilling either to the same extent or at all in the most current quarter. So it ends up being a pretty small part of the business for us right now with the U.S. utility scale and then certainly Australia, Europe and U.S. DG making up the lion's share of what we do as a company.

My follow-up is on something you've briefly touched on which is the Chinese joint venture. I think it lost -- or your share of it was negative $4 million this quarter, and it's been pretty consistently negative. I know you don't guide to it, but any sense of when it should get at least to breakeven?

Let's say that business is in pretty significant scale up. If you go back to three years ago, even 2019 to date, we've effectively scaled that up from zero to 8 gigawatts. So it's very much in scale mode. And while you're ramping factories, you've even seen it with our own the factories that we've ramped up for the Performance Series product for the U.S. It does put an impact on profits in the near term, but because you're investing for the future. And let's say, as that business scales, it's getting more and more cost competitive because it's getting more economies of scale. But as that stabilizes, we expect it to hit profitability. We're not providing any forecast at that level for when we expect it to get to profitability. But right now, it's probably more of an emphasis on scale and growth than it is on near-term profitability.

Fair enough. Thank you, guys.

Thank you, Pavel.

Thank you. Our next question comes from the line of Kevin Pollard with Pickering Energy Partners. Your line is open.

Thank you. Just one last quick question for me. With Maxeon 7 funded improvement up in the pile on rate of scale, can you give us a little bit more color on the timing of when the -- exactly when that starts and how long it will take to fully scale? And I guess what's -- what will be the ultimate capacity of the Fab 4 once that transition has occurred?

Sure. Thanks, Kevin. So first, the existing capacity for Maxeon 3 in the Philippines is about 550 megawatts a year. So you can think about Max 7 is providing an uptick to that because you are going to be getting higher efficiencies, so more watts per panel than what you would get. But -- so think of it as a small bump above the 550 that we currently do. As for timing, as we said in the prepared remarks, we are -- given the current market environment, given the new capital that we have, we are looking at doing an investigation of potentially going to a larger wafer than what we currently planned, which was a 5-inch wafer. We'll make some decisions on that quickly, but that would have an impact on the exact timing of when Max 7 would come. But you can think about it as kind of around the turn from '23 to '24, so around that time frame.

Okay, thanks. And then I wanted to ask a little bit longer-term question on the U.S. Performance Line business. So you've kind of talked about the DG margins being 20% plus going forward. With the USP line, obviously negative right now with the startup and ramp costs and the initial contracts. But what's the margin profile of that USP line business look like once you kind of move to fully ramped and you're pretty much on full variable pricing contract?

Yeah, absolutely. We've been -- from the get-go, we've been targeting and are still committed to and forecasting a 15% gross margin, kind of our long-term financial model target for the company. So you can think about it as a 15% gross margin or potentially better, but that's where we've been forecasting it.

Okay. That's all for me, guys. Thanks.

Thank you. As there are no further questions, we will now conclude the call. Thank you again. You may now disconnect.