Earnings Call Transcript - MAXN Q3 2021

Operator, Operator

Good day, ladies and gentlemen. Welcome to the Maxeon Solar Technologies Third Quarter 2021 Earnings Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to our host, Mr. Robert Lahey of Maxeon Solar Technologies. Sir, you may begin.

Robert Lahey, Host

Thank you, operator. Good day, everyone, and welcome to Maxeon's Third Quarter 2021 Earnings Conference Call. Today, we have our Chief Executive Officer, Jeff Waters; Chief Financial Officer, Kai Strohbecke; and Chief Strategy Officer, Peter Aschenbrenner. Before I turn the call over to Jeff, let me cover a few housekeeping items. 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 described in our safe harbor slide of today's presentation, press release, the 6-K, and other SEC filings. Please see those documents for additional information regarding the factors that may affect these forward-looking statements. We have also posted a supplemental slide deck on the Events and Presentations page of Maxeon's Investor Relations website. Secondly, 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 for a presentation of the most directly comparable GAAP measure, including the relevant GAAP to non-GAAP reconciliations. Finally, comparisons to the third quarter of 2020 reflect a carve-out of Maxeon's results for a portion of the quarter while it was still part of SunPower last year. We began operating as an independent company on August 27, 2020. With that, let me turn the call over to Maxeon's CEO, Jeff Waters.

Jeffrey Waters, CEO

Thank you, Rob, and good day, everyone. I'll start by providing a business overview and covering recent accomplishments. Kai will then review our financial performance and outlook, and we'll conclude with Q&A. I'm proud of how the Maxeon team performed in the third quarter despite unprecedented upstream supply chain headwinds. We navigated increased materials costs and logistics, set another record in European DG sales, and are on track with our key strategic initiatives, including our North American performance line capacity, the ramp of Maxeon 6, and our Beyond the Panel strategy. These strategic initiatives are timely as the movement toward a global low-carbon economy is accelerating, driven by solar manufacturing incentives in the U.S. The world has an insatiable appetite for solar, and Maxeon has the panel technology and global channels to lead in this market. While supply disruptions occupy our focus, we are building for the longer-term transition from fossil fuels to renewables. This is the motivation for Maxeon employees and drives our business's enormous upside potential. I want to provide an update on our employee safety. A group of employees at our Malaysia facility tested positive for COVID-19 in August. We responded with an aggressive mitigation effort, shutting down the facility for 15 days and reopening in a structured manner as most of our employees became fully vaccinated. By October 1, 99% of our Malaysia employees were vaccinated. The local government supported our response, and we're pleased that our employees are safe, with the facility fully reopened. In our other major factories, more than 75% of our Mexico employees are vaccinated, and around 60% of our Philippines employees are vaccinated, which is significantly higher than the national average. Now, moving to our Q3 results, let's discuss the upstream solar supply chain. We took several steps to mitigate the impact of steep cost increases in materials and logistics, enabling Maxeon to maintain financial stability towards our 2023 transformation. As mentioned in our second quarter earnings call, prices for freight, polysilicon, copper, glass, EVA encapsulant, and aluminum increased significantly from 2020 levels. Some costs, including freight, unexpectedly spiked further in Q3, significantly impacting our supply chain. Our highest exposure to supply chain inflation this quarter was in outbound Asia freight pricing. To address this, we reinvented our module packaging design to increase packing density by 5% and switched to airfreight for some solar cell shipments to Mexico, helping Maxeon preserve our reputation for excellent on-time delivery. Shipping cells by air directly to our Modcos in Mexico allowed us to avoid congestion at Southern California ports. Our outbound supply chain in Europe faced more challenges, but we still set another sales record for our European DG business. We also took the initiative in Q3 to establish outbound Asia rail transport capabilities, which provide significant speed advantages for our delivery commitments in Europe. Additionally, ramping up our IBC module production in Malaysia saves significant shipping costs to Asia and Europe compared to previous methods from Mexico. Looking ahead to 2022, we have further mitigation efforts planned. Our Maxeon 6 modules will have over a 20% packing density advantage compared to the Maxeon 2 capacity they replace. Furthermore, our performance line Modco in Mexicali will bring us closer to the U.S. market and benefit from our captive cell production in Malaysia. As we expand our Beyond the Panel business, our supply chain will diversify further. Looking to 2023 and beyond, we expect more potential for logistics leverage, especially with our new lightweight Maxeon Air product and the introduction of Maxeon 7, which has higher efficiencies in watts per panel and offers us an opportunity to establish solar cell and module production in the U.S. In summary, while we face challenging upstream supply chain conditions, our operations team has kept our employees safe, delivered products to our customers on time, and managed costs with both short- and long-term focus. Now, let's go over our three strategic pillars for profitable growth transforming Maxeon. Implementation over the next five quarters on these pillars will enable us to achieve our target business model in 2023 of at least 20% revenue growth, greater than 15% gross margin, and greater than 12% adjusted EBITDA margin. First, on leading panel innovation, our teams in Malaysia and Mexico are on track to ramp up an incremental 250 megawatts with Maxeon 6 and 1.8 gigawatts of performance line in 2022. Together, these initiatives will triple Maxeon's in-house capacity compared to Q3 levels with enhanced gross margins. Our first Maxeon 6 module shipped in October, and we are on schedule to have more than 200 megawatts of capacity online this quarter, increasing to over 500 megawatts in 2022. We expect that the performance increase and higher average selling prices of Maxeon 6 will enable us to deliver gross margins over 20 percentage points higher than Maxeon 2. The Maxeon 7 pilot line has gone live, producing cells with the highest efficiency ever recorded for our IBC technology. We are optimistic about the future of Maxeon 7 and its capacity to deliver significantly improved performance and durability. In the focused utility-scale area, we are increasing our attention on the U.S. where policy tailwinds and strong customer demand present significant opportunities for Maxeon. We have recently manufactured our first G12 format solar cells in Fab 3 and are on track to begin performance line module shipments from our Mexicali Modco in the second quarter of 2022. U.S. customers appreciate that Maxeon is publicly traded in the U.S. with superior technology and North American manufacturing. We previously announced a gigawatt-scale supply contract for Primergy's Gemini project near Las Vegas and are pleased to announce a new agreement with our partner and shareholder, TotalEnergies, to supply approximately 400 megawatts of panels for one of their major projects in the U.S., with most deliveries in 2023. We expect to receive a prepayment exceeding $50 million by Q1 2022, which is another strong testament to the attractiveness of our supply chain for the U.S. market. We are also addressing utility-scale opportunities in other regions, having booked our first major project in India this year with nearly 200 megawatts to be shipped between Q3 and Q4. Our pipeline remains in multiple gigawatts, but China's new energy rationing policies have impacted our ability to close bookings in the short term. Fortunately, our Joint Venture (JV) model allows us to adapt and continue to leverage our partners in the domestic Chinese market. Finally, I want to mention our differentiated Distributed Generation (DG) channel, which achieved notable milestones in Q3. Overall volume in Europe was record-breaking, with strong growth in Italy, the Netherlands, and Germany. In Latin America, several countries are among our fastest-growing markets, with the most significant presence in Mexico and Brazil. In Q3, our Mexico team expanded our installer partner network by approximately 40% and is launching a consumer financing product offering for the region, expected to be available to consumers starting Q1 2022. We anticipate consumer finance to be a significant value-add to our DG channel, similar to positive traction seen in the U.S. market. Our AC panel volume outside the U.S. increased 50% sequentially in Q3 and is projected to rise over 50% sequentially in Q4. Italy, a stronghold for Maxeon, did not secure microinverter product certification until September but is now ramping quickly with a full suite of Maxeon AC panel options. In key European markets—France, the U.K., and the Netherlands—we’re on track for AC panels to account for over 20% of sales by year’s end, with Australia exceeding 30%. Looking into 2022, we expect rapid growth in Beyond the Panel revenue, driven by overall module volume growth, tax increases, and new adjacent hardware, particularly battery storage. We believe non-panel revenue will be the most appropriate measure for the success of our Beyond the Panel strategy and will provide guidance for this metric during our 2022 Analyst Day. Before turning the call over to Kai, I would like to update you on our U.S. manufacturing plans. Last call, we announced our goal to move forward with a 3-gigawatt cell and module facility on U.S. soil, pending successful negotiation of a Department of Energy (DOE) loan guarantee and the passage of enabling legislation, including the Solar Energy Manufacturing for America Act (SEMA). Since then, the DOE invited us to proceed to the second phase of their process, which may lead to conditional commitment and a final loan agreement. Additionally, a recently negotiated draft of Congress’ Build Back Better Framework features a modified version of SEMA plus additional incentives for our customers. We support this transformative legislation, and if passed, Maxeon is positioned to ramp capacity and contribute significantly to building a domestic U.S. solar supply chain. Now, I will turn the call over to Kai to review our financial performance.

Kai Strohbecke, CFO

Thank you, Jeff, and hello, everyone. Let's turn to our financial results. I will discuss the drivers and details of our third quarter performance and then provide guidance. Total revenue for Q3 was $220 million, at the low end of our guidance range of $220 million to $240 million. Our revenue was up 25% sequentially, driven by growth in the utility-scale business and another record quarter from our European DG channel. U.S. shipments also increased significantly from the second quarter. Total shipments for Q3 were 566 megawatts, representing 30% sequential growth, which was below our guidance range of 580 to 640 megawatts. This shortfall is attributed to our exposure to the global shipping delays that escalated in September. By the end of Q3, we had 201 megawatts or 36% of quarterly shipments physically in cargo containers at sea or waiting to be loaded onto vessels. This compares to 118 megawatts or 27% of shipments at the end of Q2. As Jeff mentioned, we took various actions to reduce our exposure to supply chain turbulence, but they were not realized in time for us to meet our third quarter shipment target. Our sales team exceeded expectations regarding average selling prices (ASPs), which allowed our revenue to remain within guidance. The sales mix was favorable due to strong sales into our DG channels, which have materially higher pricing than utility-scale. On IBC shipments, ASPs increased by more than $0.01 sequentially to $0.52 per watt in Q3. Blended ASPs were $0.39 per watt in Q3, down $0.02 from $0.41 in Q2 because of a higher revenue mix from our utility-scale business. Gross loss was $16.7 million or negative 7.6% of sales, which aligns with our guidance range of $10 million to $20 million loss. Our cost of goods sold included a $19 million impact or 8.6% of sales from our out-of-market polysilicon contract, with $7.4 million lost from sales of ancillary polysilicon in the market, and $11.5 million was for polysilicon consumed in our production of IBC panels. The computation for these charges is based on market polysilicon prices at the beginning of each quarter, and thus, is not impacted by intra-quarter fluctuations in spot prices. Our gross margin was also affected by planned underutilization costs related to retrofitting legacy production lines for Maxeon 6 and other transition activities. You can see on Slide 4 of our supplementary earnings presentation how our temporarily reduced capacity in Q3 compared to previous and future quarters. Costs associated with the technology transition met expectations, but our COVID shutdowns in Malaysia resulted in incremental charges, primarily included in our guidance. Altogether, underutilization charges due to these factors totaled approximately $6 million for the quarter. We also saw higher freight and wafer costs during Q3 that exceeded expectations. Our previous projections did not account for the duration and impact of China's Ningbo Port closure in late August and congestion at Long Beach and Los Angeles ports. We estimate that supply chain costs for products sold in Q3, including freight, silicon, aluminum, and copper, rose by approximately $33 million or 15% of third quarter sales year-on-year. To summarize, our gross loss was below the midpoint of guidance, primarily due to supply chain and COVID reopening-related costs exceeding expectations. Non-GAAP operating expenses, which adjust our GAAP operating expenses for restructuring charges and stock compensation expenses, totaled $29.7 million, near the low end of our guidance range of $31 million, plus or minus $2 million. We maintained discipline on controllable spending, aided by bad debt reversals of $2 million related to collections from customers. Adjusted EBITDA for Q3 was negative $33.1 million compared to negative $27.3 million in Q2 2021 and better than the midpoint of our guidance range of negative $30 million to $40 million. Adjusted EBITDA benefited from operating expenses coming in better than planned and a $3 million gain in the valuation of our HSPV position, attributable to a September capital injection by our partner TZS, which diluted our ownership from 20% to 16.3% but left our offtake rights unaffected. As a result of this valuation gain and favorable operating expenses, our adjusted EBITDA was above the midpoint of our guidance. GAAP net loss was $65 million compared to $77 million in Q2 2021. The sequential improvement was influenced by restructuring charges of $1.5 million, down from $5.2 million in Q2 2021. Restructuring charges in Q3 were lower than our guidance range of $3 million to $4 million due to the efficient progress of our legacy factory shutdown. Turning to our balance sheet, we closed Q3 with $203 million of cash and restricted cash, down from $272 million at the end of Q2. The decline mainly resulted from planned capital expenditures. Operating cash flow totaled negative $11 million in Q3. Despite headwinds influencing net loss and inventories, we are pleased with our working capital management. Inventories increased to $220 million, up $8 million from Q2, while Days Inventory Outstanding (DIO) improved sequentially from 105 days to 83 days on higher sales. The increase in inventories resulted from extended transit times negatively affecting our sales revenue during the quarter. Capital expenditures in Q3 were $54 million, slightly below the low end of our guidance range of $55 million to $65 million, primarily funding the capital-efficient ramp of Maxeon 6 technology and our U.S. performance line capacity. Now, let's look at our fourth quarter outlook. We are finishing 2021 focused on cash management, cost reduction, and executing key margin-improving initiatives like ramping Maxeon 6 and performance line for the U.S. as well as setting up our Malaysia Modco. While we expect our first Maxeon 6 sales to positively impact gross margins in Q4, the most significant margin initiatives and other developments will not materialize until 2022. Along with many industry observers, we anticipate limited changes in overall supply chain conditions until mid-2022. Our guidance reflects shipments in the range of 540 to 570 megawatts, with a higher sequential mix of DG volume, thanks to the tireless efforts of our supply chain team to deliver products amid unprecedented conditions. We expect projected revenues in Q4 between $215 million to $235 million. Non-GAAP gross loss is anticipated to be in the $5 million to $15 million range, including charges related to our out-of-market polysilicon contract estimated at $13 million to $17 million. We aim to capitalize on high polysilicon prices, opportunistically selling any excess polysilicon that isn’t consumed in our value chain during Q4. Thus, we expect losses to be in the low $60 million range for 2021, lower than previous expectations of $80 million or more. As of the end of Q3, our remaining purchase obligations stood at $157 million worth of polysilicon at contracted prices through the end of 2022, with $62 million already prepaid. With polysilicon prices expected to stay high going into 2022, we will have opportunities to monetize the excess polysilicon at attractive prices. Non-GAAP operating expenses for Q4 are expected to be $31 million, plus or minus $2 million, consistent with Q3, excluding the bad debt reversal impact. Adjusted EBITDA is projected to be negative $32 million to $42 million, impacted by the anticipated gross loss. Restructuring charges of $2 million to $3 million are expected as restructuring activities of our manufacturing network near completion. Capital expenditures for Q4 are expected to be in the range of $45 million to $50 million, driven by transition to Maxeon 6 technology and performance line capacity build-out in Malaysia and Mexico. We plan to finish 2021 within our original annual guidance of $170 million in capital expenditures. Our 2022 CapEx plan is subject to changes depending on the timing and extent of Maxeon 7 processing and our new U.S. manufacturing footprint. Today, excluding these opportunities, we plan to spend about $70 million, primarily to complete the first 250 megawatts of Maxeon 6 and retrofit all 250 megawatts of Maxeon 5 capacity to Maxeon 6. Regarding Maxeon 7 capacity and ramp, we're evaluating a very capital-light conversion of our existing 550 megawatts of Maxeon 3 capacity in the Philippines into Maxeon 7, anticipating CapEx of about $60 million to $80 million. Early success with the Max 7 pilot line might enable this conversion to start as early as 2022, lasting through 2023. We're still evaluating the timing of CapEx spending and funding options for this and other growth opportunities. To conclude, we are pleased with our progress, especially that our transformation initiatives are on track despite significant challenges. With most initiatives set for completion over the next five quarters, we anticipate our transformation's culmination. We look forward to showcasing this transformation for our shareholders and encourage you to closely follow our execution of Maxeon 6 U.S. performance line and Beyond the Panel. Now, I’ll turn it back to Jeff for a summary before we transition to Q&A.

Jeffrey Waters, CEO

Thanks, Kai. At the time of our spin-off in 2020, we projected a transformation to a 15% gross margin business. Having addressed many challenges since then, we have clear visibility on this transformation. Over the next five quarters, we expect to triple our in-house capacity with higher-margin products, add storage to our Beyond the Panel portfolio, make progress on our out-of-market polysilicon contract, and encounter an eventual stabilization in our supply chain. These four factors will drive our transformation. We look forward to our Capital Markets Day in the first half of 2022, where we’ll share our next steps for Maxeon in greater detail. Now, let’s go to the Q&A session. Operator, please proceed.

Operator, Operator

Our first question will come from Julien Dumoulin-Smith with Bank of America Securities.

Julien Dumoulin-Smith, Analyst

Well done all around. To kick things off, we've seen pretty robust improvement in the wider commodity backdrop on energy prices, especially globally. How does that impact your P-Series product, and how do the 201 dynamics contribute to P-Series prospects, particularly in the Americas?

Jeffrey Waters, CEO

Thanks for the question, Julien. I'll address the demand for P-Series in the U.S. market first. Demand remains strong for the product announced from our Mexicali site for the Performance Series panel. We’re booked for all of '22 and extending into '23, actively considering how to fill capacity for 2024. There is proactive outreach within the market. We believe the blend of our technology, our company's status as a publicly listed entity with robust ESG fundamentals, and the proximity of our factories in Mexicali makes us a great solution. Pricing is also favorable. Peter, do you want to add anything? I'll just make a brief comment on the 201 action. There was a recent ruling to reinstate the exclusion for bifacial panels in the U.S. It's still early to project the longer-term trend, but if bifacial panels remain excluded, that would facilitate utility-scale growth in the U.S., benefiting panels from our Mexicali factory. We support the administration's efforts to implement long-term incentives to boost significant scaled manufacturing in the U.S.

Julien Dumoulin-Smith, Analyst

If I can ask about liquidity and funding. What are your expectations on how these levers will interact in the fourth quarter and into '22? How do you see the different mechanisms such as timing of builds and revolvers potentially affecting capital market choices?

Jeffrey Waters, CEO

Yes, Julien, there are exciting investment opportunities for us, as Kai noted. We had over $200 million of cash and restricted cash at the end of Q3, in line with expectations. We've advanced significantly on our 2021 capital expenditure plan, targeting $170 million. Heavy investments will be behind us soon. Our 2022 CapEx baseline is modest to finalize ongoing projects, estimated at $70 million primarily for our U.S. P-Series line, Max 6, and Modco in Malaysia. We've successfully managed net working capital, achieving negative $11 million operating cash flow for Q3 amid supply chain challenges. Plus, we have prepayment success from customers and strategic partners, which positively contributes to liquidity. We continually evaluate options for additional liquidity and will decide on those when the time is right.

Julien Dumoulin-Smith, Analyst

So it sounds like existing liquidity avenues plus the cash on the balance sheet should address your needs through '21 and '22. Is that correct?

Jeffrey Waters, CEO

We have a range of options and flexibility there.

Julien Dumoulin-Smith, Analyst

Can you elaborate on the decision tree regarding U.S. expansion and your initial expectations on margins for the project?

Jeffrey Waters, CEO

From our investment into Malaysia and Mexicali for the U.S. P-Series product, our model indicates alignment with our long-term 2023 target of a 15% gross margin. This expectation remains consistent. We've also considered the broader U.S. P-Series context, including SEMA incentives and DOE loan guarantees. While many uncertainties remain, we believe margin expectations will align closely with our Mexicali factory and Malaysia investment. The primary benefit for customers lies in product pricing and the proximity of the supply chain, significantly mitigating risks associated with tariff barriers. Locally made products provide great reassurance. Moreover, being a U.S.-listed company with a strong focus on Western business practices strengthens our position.

Operator, Operator

Our next question will come from Pavel Molchanov with Raymond James.

Pavel Molchanov, Analyst

You mentioned that costs were up year-over-year by approximately 15%. What’s the analogous module pricing in your sales mix? Is there a correlation between cost structure and pricing?

Jeffrey Waters, CEO

Overall, our pricing is diversified, meaning we can’t make one sweeping price adjustment. We have varied customers, and while some allow price increases, others have fixed contracts. In general, we recover some of those supply chain cost increases, but not all, presenting a challenge.

Kai Strohbecke, CFO

We don't have a specific number, but it’s fair to say that it is dwarfed by overall cost increases. We are recovering some, but not enough.

Operator, Operator

Our next question comes from Philip Shen with Roth Capital Partners.

Philip Shen, Analyst

Regarding the recent Section 201 rulings, what benefits can you anticipate if they remain in place? How are your contracts in your backlog structured?

Jeffrey Waters, CEO

Most of our contracts have a shared tariff-risk mechanism, meaning we can benefit if the product is exempt from 201 tariffs.

Philip Shen, Analyst

Thank you for your insights. Additionally, SunPower has recently acquired Blue Raven. Given that market conditions, when do you anticipate you can start supplying Blue Raven with SunPower IBC products?

Jeffrey Waters, CEO

We have the capacity to meet IBC demand, and we are able to support Blue Raven, both for IBC and P-Series as needed. We are optimistic about SunPower's growth in the residential market.

Philip Shen, Analyst

Regarding margins and outlook for 2022, can you discuss the quarterly margin trajectory? Will we see breakeven or positive gross margins by Q1 or Q2?

Jeffrey Waters, CEO

Looking at gross margin drivers, we face headwinds like the out-of-market polysilicon, expected to end in 2022. We will see a significant impact from supply chain costs and normalized polysilicon capacity by mid-2022, which should contribute to improving margins. While Q1 and Q2 are seasonally weaker quarters for us, we standing by our long-term 2023 gross margin target, which gives us confidence in our progress.

Philip Shen, Analyst

I wanted to discuss the potential for another Hemlock-type contract to secure silicon supply in light of recent market shakeups. How critical is this?

Jeffrey Waters, CEO

We are in discussions with poly suppliers. It's vital to ensure we have the right supply for our growth. Any new agreements will be approached carefully to maintain flexibility and avoid similar out-of-market poly contracts we’ve faced in the past.

Philip Shen, Analyst

Lastly, regarding your P-Series manufacturing capacity and IP, what impact does HSPV’s expansion in China have on control over your P-Series technology?

Jeffrey Waters, CEO

There’s no change in our relationship. HSPV's expansion involves a satellite manufacturing subsidiary producing for us, ensuring no disruption in our IP or product allocation.

Operator, Operator

Our next question will come from Brian Lee with Goldman Sachs.

Unidentified Analyst, Analyst

This is Grace on for Brian. Looking at Q4 shipment guidance, it appears lower quarter-over-quarter. Can you explain the reasons behind this? Additionally, how should we anticipate seasonality in 2022 amidst challenges?

Jeffrey Waters, CEO

The difference in Q4 volume results from a strong utility-scale volume in India in Q3. We applied conservatism regarding transportation and logistics for Q4 due to prevailing uncertainty. Kai, perhaps you can discuss seasonality in 2022.

Kai Strohbecke, CFO

Yes, generally, we anticipate the 40-60 split for the first and second halves. However, supply chain disruptions potentially impact our performance compared to historical seasonality.

Unidentified Analyst, Analyst

As a follow-up, regarding your 2023 gross margin target of 15%, what risks do you perceive that could hinder reaching this target in a normalized supply chain environment?

Jeffrey Waters, CEO

Excluding polysilicon and supply chain costs, we would have achieved a $20 million positive adjusted EBITDA. Our factories are undergoing significant upgrades, boosting future capacity to meet our long-term goals. As we move closer to achieving our target margins, we remain confident about addressing risks through effective execution.

Operator, Operator

Our next question will come from David Arcaro with Morgan Stanley.

David Arcaro, Analyst

Can you share more on the operating cash flow outlook for the upcoming quarters? With so many cash needs on the horizon, when do you expect to see a shift in cash flow?

Kai Strohbecke, CFO

We manage operating cash flow closely but do not provide specific projections. We are pleased with our $11 million operating cash flow despite increased inventories. Prepayments from U.S. customers positively affect our cash flow.

David Arcaro, Analyst

In your Q4 outlook, are you factoring in improvements in supply chain issues or maintaining expectations?

Kai Strohbecke, CFO

For Q4, we expect some reductions in out-of-market polysilicon costs but see peak freight costs stabilizing. Overall, we anticipate gross profit guidance to improve from Q3.

Operator, Operator

We have a follow-up question from Pavel Molchanov with Raymond James.

Pavel Molchanov, Analyst

In Europe, do you notice better visibility for new builds compared to the U.S., given current project delays due to uncertainty over tax credits and tariffs?

Jeffrey Waters, CEO

Yes, visibility in Europe is stronger than in the U.S. while challenges previously existed due to COVID. However, the environment remains stable, especially in the commercial space. We have minimal involvement in the utility-scale segment there.

Pavel Molchanov, Analyst

And there are no tariff issues affecting your European operations, correct?

Jeffrey Waters, CEO

That’s correct. Tariff questions do not currently affect our operations in Europe.

Operator, Operator

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