First Solar Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 10 speakers on the call.

Operator

Good afternoon, everyone, and welcome to First Solar's First Quarter 2023 Earnings Call. This call is being webcast live on the Investors section First Solar's website at investor. Firstsolar.com. At this time, all participants are in a listen only mode. As a reminder, today's call is being recorded.

Operator

I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Speaker 1

Good afternoon and thank you for joining us. Today, the company issued a press release announcing its Q2 2023 financial results. The call. A copy of the press release and associated presentation are available on First Solar's website at investor. Firstsolar.com.

Speaker 1

With me today are Mark Widmar, Chief Executive Officer and Alex Bradley, Chief Financial Officer. Mark will provide a business update. Alex will discuss our financial results and provide updated guidance. Following their remarks, we will open the call for questions. Today's call.

Speaker 1

Please note this call will include forward looking statements that involve risks and uncertainties that could cause actual results today's conference call. We encourage you to review the Safe Harbor statements contained in today's press release the presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer.

Speaker 2

Thank you, Richard. Good afternoon and thank you for joining us today. With half of 2023 behind us, we continue to see strength in commercial, our financial and financial foundations, both in 2023 and in the coming years as we continue to grow. Q2 of the year continued the steady progress established in the first. As we ramped up production and delivery of our next generation Series 7 modules, reinforced our global leadership in Thin Film PV with a strategic acquisition and continued our strong bookings and ASP momentum.

Speaker 2

Moreover, continuing our commitment to sustainable long term growth, Earlier today, we announced that we will invest up to $1,100,000,000 in building a new fully vertically integrated manufacturing facility in the United States, our 5th in the country. Driven by compelling market fundamentals, supported trade and industrial policies and robust customer demand

Operator

our financial results as

Speaker 2

reflected in our year to date bookings, total contracted and booked backlog and pipeline of mid to late stage opportunities. We are pleased to continue to expand and invest in domestic manufacturing in the United States. This new facility is anticipated to be completed and begin production in the first half of twenty twenty six. And along with our Alabama facility currently under construction, This new investment puts us on track to grow our manufacturing footprint to approximately 14 gigawatts in the U. S.

Speaker 2

And 25 Gigawatts Globally by 2026, reaffirming the growth thesis we established in November 2016. Our earnings call. As noted on previous earnings call, the position we are in today is enabled by our points of differentiation. Our unique cadencel semiconductor technology, vertically integrated manufacturing process, decision to locate manufacturing close to demand of and develop robust local supply chains and unwavering commitments to responsible solar makes us our partner of choice for large sophisticated developers, both in the U. S.

Speaker 2

And internationally. As reflected by our continuing bookings progress since the previous earnings call. This depreciation continues to be a driver of long term growth and competitiveness, placing us in a position to exit this decade and a stronger position than we entered it. Beginning on Slide 3, I will share some key highlights from the Q2. We continue to build on our backlog with 8.9 gigawatts of net bookings since our last earnings call, at an ASP of $0.293 per watt, excluding adjusters where applicable.

Speaker 2

Note, for approximately half of this volume, the customer is responsible for the associated freight costs, which are therefore not reflected in booked ASPs. Including typical freight costs, the average ASP across these bookings the call. This call will increase to over $0.30 per watt. These bookings bring our year to date net bookings to 21.1 gigawatts. Our total backlog of future bookings now stands at 78.3 gigawatts, including 48.5 Gigawatts of Mid to Late Stage Opportunities.

Speaker 2

As it relates to manufacturing, We produced 2.4 gigawatts of Series 6 modules in the 2nd quarter with an average watts per module of 468. Our top bin class of 4.75 watts and a manufacturing yield of 98%. As noted in Q1 earnings call, our 3rd Ohio factory, which establishes the template for high volume Series 7 manufacturing, the company's financial results. We began operations in January and is continuing to ramp, demonstrating a manufacturing production capability of up to 13,000 modules per day, which is approximately 84% of nameplate throughput. Of the company.

Speaker 2

The factory has produced a total of 4.25 megawatts in Q2 for a total first half twenty twenty three production of 5.90 55 Megawatts. The factory recently demonstrated a top module wattage produced of 5 40 watts, of, which implies a record production efficiency of 19.3%. We sold 2 15 megawatts of Series 7 modules in Q2 and are pleased to note that the product is already being deployed in 3 projects in Arkansas, Arizona and Mississippi. Cenon Technology. We also announced during the quarter a limited production run of our first bifacial module panels, utilizing an advanced thin film semiconductor.

Speaker 2

The module, which is undergoing field and laboratory testing, Build on the track record and energy advantage attributes of First Solar's successful Series 6 Monofacial Module Platform. And we expect to begin lead line commercial production by Q4 2023. Notably, the bifacial model features an innovative transparent back contact pioneered by First Solar's research and development team. Transparent Back Contact, in addition to enabling bifacial energy gains, allows infrared wavelengths of light pass through rather than be absorbed as heat. This is expected to lower the operational temperature of the bifacial module, financial results in higher specific energy yields.

Speaker 2

We believe that the transparent box that concept is a foundational step towards the development of future Tandem products. Similarly, our acquisition of Eholar, the European leader in Thin Film Perovskites and SiX technology is also expected to accelerate the development of next generation PV technology, our Investor Relations, including high efficiency Tandem Devices, by integrating the Polar's know how with First Solar's existing research and development streams, Intellectual Property Portfolio and Expertise in Developing and Commercially Scaling Thin Film PV. Moving to Slide 4, we continue to make steady progress at our manufacturing and R and D facility expansions.

Speaker 3

The company. Starting with India,

Speaker 2

construction of the factory is now complete and preproduction testing of the installed tools is ongoing, with the first complete module having been produced in June. We expect this facility to begin production by the end of August this year and when fully ramped, add 3.4 gigawatts of annual nameplate manufacturing capacity for our mobile fleet. We're also on track to expand and upgrade our Ohio Series 6 factories to achieve an additional aggregate annual throughput of 0.9 Gigawatts, with the additional capacity expected to come online in 2024. Similarly, our new Alabama facility is also on schedule for completion by the end of 2024 with commercial operations ramping through 2025. Of.

Speaker 2

This facility is expected to add 3.5 gigawatts of annual nameplate capacity once fully ramped. Increasing our annual nameplate capacity in the U. S. To over 10 gigawatts by 2025. As it relates to our 5th U.

Speaker 2

S. Manufacturing facility announced earlier today, we continue to evaluate siting options based on the availability of suitable land and related infrastructure, proximity to our supply chains, access to skilled labor and other factors, Including the availability of state level incentives. We expect to announce our location decision shortly. Our dedicated R and D facility is also on track with construction well underway and tool sets order. As previously noted, this facility will feature a high-tech pilot manufacturing line, allowing for production of full size prototypes of thin film and tandem PV modules.

Speaker 2

This we believe will allow us to optimize our R and D efforts our financial and financial results. In progress, our technology roadmap with significantly less disruption to our commercial manufacturing lines. Of the Investor section. No, since the announcement of the Inflation Reduction Act approximately 1 year ago, we have committed over $2,800,000,000 in capital investments into United States across our existing Ohio manufacturing facilities, a new manufacturing plant in Alabama, a new research and development center in Ohio and most recently our 5th U. S.

Speaker 2

Factory announced today. We expect this will result in the creation of approximately 700 new direct jobs as well as multiples of this number in incremental indirect jobs including across our supply chain. Before we move to the next slide, I would like to take a moment to discuss the policy environment and our key markets. Starting in the United States, financial statements. We are appreciative of the work done by the Biden administration to issue IRA related guidance on Section 48C, direct pay, tax credit transfers and domestic content.

Speaker 2

We are pleased with the direct pay regulations issued during the quarter, the call. Clarifying that a 5 year direct pay period under Section 45X may be elected on a facility by facility basis, our fiscal year 2019 guidance, which will benefit our previously announced factory in Alabama, as well as our new facility announced earlier today. We are actively engaged with the administration and working with our customers to ensure that the guidance, particularly with regards to domestic content, We'll deliver on the IRA's intent to sustainably grow U. S. Manufacturing and restore a vital clean energy supply chain.

Speaker 2

Before specific more specifically on domestic content, we have shared our comments of the current guidance with the administration and are working to provide our customers with the direct cost information needed our financial results to enable their ability to benefit from the bonus credit for using U. S.-made content. Our U. S.-produced modules of our business. We are well positioned to enable our customers to qualify for the domestic content bonus credit due to both our vertically integrated manufacturing process where the entire module, including the cell, is manufactured in America and our commitment to investing in domestic supply chains.

Speaker 2

Today. Our U. S. Operations use 100% U. S.

Speaker 2

Made glass and steel among other components. As it relates to trade, we are awaiting the Department of Commerce's final determination in its investigation Chinese manufacturers accused of circumventing U. S. Anti dumping and countervailing duties. We believe that the department's investigation is a step in the right direction and sends a clear signal that the United States remains committed to the rules of international trade law and to trade that is both free and fair.

Speaker 2

Relatedly, we applaud the role of U. S. Customs and Border Protection in enforcing the We Are Forced Labor Protection Act and its transparency in reporting statistics through a public dashboard. Given the significant undertaking required to execute its mandate under the Act, the call. We believe the agency needs to be more adequately resourced to ensure the enforcement is extended beyond the handful of high profile Chinese solar manufacturers the

Speaker 4

company's call is currently being scrutinized.

Speaker 2

The relatively narrow scope of enforcement would effectively allow lesser known solar panel manufacturers the company's website, who may source their polysilicon from the Xinjiang region of China to freely export their products into the U. S. Without risk of attention. Internationally, we continue to follow policy developments in Europe, where the EU is working towards a path to energy self sufficiency. Well, we are cautious and that the market given the recent collapse in polysilicon pricing of the call and the impact that irrationally cheap solar panels driven by oversupply and dumping into Europe may have on the political willingness

Speaker 4

the company's financial results to

Speaker 2

deliver a comprehensive legislative solution that both levels the playing field and incentivizes domestic manufacturing. While we remain engaged with the EU, we are pleased to see its member states move forward with their own plans to reshore solar manufacture. The call. Most notably, Germany's Federal Ministry of Economics and Climate Protection recently launched a request for expression of interest and a plan to build approximately 10 gigawatts of vertically integrated solar manufacturing capacity in the country. Of the business.

Speaker 2

The industry launched the initiative under the Europe's temporary crisis and transition framework, and we intend to submit a non binding expression of interest. However, we continue to hold the position that manufacturing CapEx incentives alone are not an adequately sustainable solution Europe's Challenges. If mechanisms are not put in place for domestic manufacturers to have a sustained level playing field for their capital investments, Eric will find it challenging to achieve what the U. S. And India have been able to do in a relatively short period of time.

Speaker 2

Moving to Slide 5. As of December 31, 2022, our contracted backlog totaled 61 0.4 Gigawatts, with an aggregate value of $17,700,000,000 Through June 2023, we entered into an additional 13.6 gigawatts of contracted and recognized 4.7 gigawatts of sold volume, resulting in total backlog of 70.3 Gigawatts with an aggregate value of $20,800,000 which equates to approximately $0.296 per watt, an increase of 0.08 dollars of a penny compared to end of year 2022 and $0.028 per watt compared to June 30, 2022. Since the end of the second quarter to date, we have entered into an additional 7 point 5 gigawatts of contracts, bringing our total backlog to date to a record 77.8 gigawatts. Included in our backlog since the previous earnings call are contracts of approximately 1 gigawatt or more with new customers, Capital Power Development and Matrix Renewables USA, as well as with a large European customer. We also signed and announced on July 16, a follow on 5 gigawatt deal with Energex Renewables, of leading Israeli developer and repeat customer.

Speaker 2

4 gigawatts that sits within our bookings and 1 gigawatt of which is contract subject to conditions precedent. In addition, we currently amended a previously booked the financial results. We will now

Speaker 4

begin the Q1 of 2019 with Energex

Speaker 2

increasing the module ASP and committing to providing U. S. Modules for 8 50 megawatts of their projects.

Speaker 4

Of the call. Since the announcement of

Speaker 2

the IRA, we have amended certain existing contracts to provide U. S. Manufactured products as well as to supply Series 7 modules in place of Series 6. As a consequence, over the past 4 quarters up to the end of Q2 2023, we have increased our contracted revenue by $312,000,000 across 9.2 gigawatts or approximately $0.034 per watt. Note, we are still progressing additional amendments associated with providing U.

Speaker 2

S. Manufactured and Series 7 products, which we expect to be reflected our Q3 contracted revenue backlog. As we've previously addressed, a substantial portion of our overall backlog includes the opportunity to increase the base ASP through the application of adjusters. If we're able to realize achievement within our technology our road map as of the required timing for the delivery of the product. As of the end of the second quarter, we had approximately 36.4 gigawatts of contracted volume.

Speaker 2

With these adjusters, if fully realized, would result in additional revenue of up to $700,000,000 for approximately $0.02 per watt, the majority of which would be recognized between 20262027. As previously discussed, this amount does not include potential adjustments, which are generally applicable to the total contracted backlog, of Advair increases in sales rate or applicable aluminum or sales commodity price changes. Finally, this amount does not include any remaining potential higher rate domestic content price adjustments in excess of the already amended 9.2 gigawatts referenced above. Our contracted backlog extends into 2,030, including our most recent bookings. Excluding India, we are sold out through 2026.

Speaker 2

Note, some production from India of the call is expected to be used to support U. S. Deliveries in 2024 2025. As reflected on Slide 6, our pipeline of potential bookings remains robust. With total booking opportunities of 78.3 Gigawatts, a decrease of approximately 34 Gigawatts since the previous quarter.

Speaker 4

Our fiscal year.

Speaker 2

Our mid to late stage opportunities decreased by approximately 24 gigawatts to 48.5 gigawatts and includes 41 Gigawatts in North America, 5.5 Gigawatts in India, of 1.8 Gigawatts in the EU and 0.2 Gigawatts across all other geographies. The decreases in total and mid to late stage our pipeline from Q1 2023 to Q2 2023, as a result of both converting certain opportunities to bookings as well as the removal of certain other opportunities given our sold out position and diminished available supply. The call. They also reflect the removal of 1 large multi gigawatt multi year opportunity where we were unable to come to terms with the customer. As we previously stated, we will continue to forward contract with customers who prioritize long term relationships and value our differentiation.

Speaker 2

Of our business. And given the strength and duration of our current contracted backlog, we will be strategic and selective in our approach to future contracting. Included within our mid to late stage pipeline are 6.7 gigawatts of opportunities that are contracts subject to conditions precedent, which includes 1.9 Gigawatts in India. Given the shorter timeframe between contracting and product delivery In India, relative to other markets, we would not expect to say multiyear contracted commitments that we are currently seeing in the United States. As a reminder, time contracts in India will not be recognized as bookings until we have received full security against the offtake.

Speaker 2

Moving to Slide 7. While we will release our annual sustainability report in the coming weeks, We'd like to take this opportunity to preview a few highlights with you. As we have consistently noted, our commitment to Responsible Solar It's not a tagline, but our way of doing business. This commitment is underpinned by the belief that solar should Never come at the expense of the environment or human rights and drives our company's environmental, social and governance strategy and differentiation. It is this commitment that has driven down our greenhouse gas emissions, energy, water and waste intensity per watt produced and increase the percentage of women in our workforce in 2022 relative to the preceding year.

Speaker 2

Our achievements build on previous year's successes and we have developed a roadmap with additional initiatives to reduce our absolute scope 1 Ensoke 2 greenhouse gas emissions by 34% by 2028 of and achieve net zero emissions relative to 2020 by 2,050. Crucially, we also recognize that we cannot get to net zero Without a Circular Economy. And we continue to make progress on building circularity into our next generation modules and manufacturing processes the call for raw material sourcing to high value recycling with closed loop semiconductor recovery. This is reflected in the fact that the Series 7 modules designed with sustainability in mind and is our most eco efficient product to date. Of our financial results.

Speaker 2

It's also reflected in the fact that our new facility in India, which is located in the region of high baseline water stress, of the call is designed to be net 0 water withdrawal PV manufacturing facility, which we believe to be the world's first. As a purpose driven company, we consistently hold ourselves to a higher standard and proudly set new benchmarks in the hope that by leading by example, the company's earnings call. I'll now turn the call over to Alex, who will discuss our Q2 results. Thanks, Mark. Starting on Slide 8, I'll cover

Speaker 3

our financial results for the 2nd quarter. Net sales in the 2nd quarter were $811,000,000 an increase of $262,000,000 compared to the 1st quarter. Increase in net sales was primarily driven by strong market demand led to higher volumes sold, commencement sales of our next generation Series 7 modules an increase in module ASPs. Gross margin was 38% in the 2nd quarter compared to 20% in the 1st quarter. The call.

Speaker 3

This increase is primarily driven by the increase in module ASPs, lower sales freight costs and higher volumes of modules produced and sold in the U. S, resulting in additional credits from the Inflation Production Act. Based on our differentiated Versa Consumer Manufacturing model and the current form factor of our modules, We expect to qualify for a Section 45X credit approximately $0.17 per watt for each module sold, the call, which is recognized as a reduction to cost of sales in

Speaker 2

the period of sales. During the

Speaker 3

Q2, we recognized $155,000,000 of such credit net debt to $70,000,000 in the Q1. We encourage you to review the Safe Harbor statements contained in today's press release and presentation for risks related to our receiving the full amount of tax benefit we believe we are entitled to under the IRA. The quarter. Reduction in our sales freight costs during the quarter reflected improved ocean and land rates, a significant reduction in non standard charges for container detention and demurrage, the

Speaker 2

financial results as well as a

Speaker 3

beneficial domestic versus international mix of volumes sold. The lower sales rate costs reduced gross margin by 8 percentage points during the Q2 compared to 15 percentage points in the Q1. Ramp costs, which includes costs associated with operating a new factory below its target utilization and performance levels were €29,000,000 during the Q2 compared to €19,000,000 in the Q1. Of our guidance. Our year to date ramp costs are fully attributable to our new Series 7 factory in Ohio, which is expected to reach its initial target operating capacity later this year.

Speaker 3

We also begin to expect recurring ramp costs to our new Series 7 factory in India in the Q3. SG and A and R and D expenses totaled CAD83 1,000,000 in the 2nd quarter, an increase of CAD8 1,000,000 compared to the 1st. This increase is primarily driven by additional of our R and D workforce, higher R and D testing costs, additional share based compensation expense and higher professional fees. Our financial results. Production start up expense, which is included in operating expenses, was CAD23 1,000,000 in the 2nd quarter, an increase of approximately CAD4 1,000,000 in the 1st quarter.

Speaker 3

This increase is attributable to higher preproduction costs at our new factory in India

Speaker 2

as we prepare for

Speaker 3

the start of production this quarter. Our Q2 operating results included approximately $8,000,000 of non module revenue associated with project earn out payments from our former systems business. We also recorded a litigation loss of $36,000,000 associated with a dispute with the Southern Power Company related to legacy EPC brand to 5 Form Projects in the United States, of which we served as the EPC contractor. We are evaluating our options in relation to this litigation. Year to date operating loss impact Legacy Systems Business related activities was approximately CAD22 1,000,000 Our 2nd quarter operating income was CAD169 1,000,000 which included depreciation, amortization and accretion of CAD72 1,000,000 grant costs of CAD29 1,000,000 production start up expense of $23,000,000 legacy systems business related impact of $28,000,000 share based compensation expense of 8,000,000 the call.

Speaker 3

We recorded tax expense of $18,000,000 in the 2nd quarter compared to a tax benefit of $7,000,000 in the 1st quarter. The call. The increase in tax expense is driven by higher pretax income and lower tax benefits associated with share based compensation awards with the majority of these awards vest during the Q1 of each year. Of the call. The aforementioned items combined led to a 2nd quarter diluted earnings per share of $1.59 compared to $0.40 in the 1st quarter.

Speaker 3

Of the call. And note, growth related start up and ramp costs have impacted Q1 and Q2 by $38,000,000 $53,000,000 respectively, the cumulative first half twenty twenty three operating income impact of 91,000,000 our financial results. Next on Slide 9 to discuss select

Speaker 4

balance sheet items and summary cash

Speaker 3

flow information. Our cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities ended the quarter at $1,900,000,000 versus $2,300,000,000 at the end of the prior quarter. The call. This decrease is primarily driven by capital expenditures associated with our new facilities in Ohio, Alabama and India and payment for our acquisition of Evolva, partially offset by advanced payments received for future module sales

Speaker 2

and additional drawdown by India Credit Facility. The call.

Speaker 3

As it relates to advanced payments, for substantially all contracts in our backlog at the time of booking, we typically require payment security, the financial statements. We have a strong financial statements of credit and parent guarantees, our financial results, targeting up to 20% of the contract value. Cash deposits, which are reflected on our consolidated balance sheet as deferred revenue, the quarter, totaling approximately $1,500,000,000 at the end of the quarter, providing meaningful portion of the financial resources required to fund our existing expansion method.

Speaker 4

The call. Total debt at the end of

Speaker 3

the second quarter was $437,000,000 an increase of $117,000,000 from the 1st quarter as a result of the loan drawdown under our credit facility for our factory in India. Our net cash position decreased by approximately $500,000,000 to $1,500,000,000

Speaker 2

the financial results of the aforementioned factors.

Speaker 3

Cash flows used in operations were $89,000,000 in the 2nd quarter, primarily due to expansion related activities. Capital expenditures of $383,000,000 during the period. During the quarter, we secured a 5 year revolving credit facility for $1,000,000,000 our financial results. We're focused on exiting this decade in a stronger position than we entered it and liquidity is a crucial differentiator we intend to maintain. This facility provides us with the financial headroom and flexibility we need while also balancing our ability to grow in response to demand for our technology.

Speaker 3

Continuing on Slide 10, I'll discuss full year 2023 guidance. As noted in our February guidance call. Given the declining impact of our other segments, we said that we are no longer providing segment specific guidance, but would note any significant impact to our consolidated financials.

Speaker 4

The call. As it relates to

Speaker 3

our legacy systems business, year to date, we have seen approximately $20,000,000 of revenue, dollars 14,000,000 of gross profit, $36,000,000 of litigation losses within operating expense. Related to our module business, we expect to see approximately $40,000,000 improvement in gross profit

Speaker 4

our prior guidance. Given

Speaker 3

their size, these combined numbers do not impact our forecasted revenue and gross margin guidance ranges, which remain unchanged. Note, our full year Section 45 net tax benefits forecast of $660,000,000 to $710,000,000 is also unchanged. Our operating expenses guidance has increased to $450,000,000 to $475,000,000 to reflect the aforementioned litigation losses. Operating income and earnings per share guidance remain unchanged. At the high level in terms of earnings cadence over the second half of the year, we anticipate that volumes sold, revenue, IRA Section 45X benefits, and we distributed approximately 40% in the 3rd quarter and 60% in the 4th quarter.

Speaker 3

The call. With operating expenses approximately evenly split between Q3 and Q4, this implies an expected second half twenty twenty three EPS split approximately 1 third in Q3, 2 thirds in Q4. Incremental capital expenses of approximately 100,000,000 2023, closely with our newly announced U. S. Factory, are offset by a push out in the timing of approximately $300,000,000 of CapEx associated with equipment upgrades previously assumed in 2023 into early 2024.

Speaker 3

Our full year 2023 capital expenditures forecast is therefore reduced the $1,700,000,000 to $1,900,000,000 This reduction in forecasted capital expenditure combined with an expected increase in deposits associated with future bookings the results and expected $300,000,000 increase of our forecasted year end net cash balance, which is now $1,500,000,000 to 1,800,000,000 the call. Directed to our longer term outlook beyond 23, we plan to hold an Analyst Day at our Ohio campus on September 7 this year, which will be a live webcast. Go to Slide 11, I'll summarize the key messages from today's call. Demand continues to be robust with 21.1 gigawatts of net bookings year to date, our earnings call, including 8.9 gigawatts of net bookings since our last earnings call, leading to a record contracted backlog of 77.8 gigawatts. Our continued focus on manufacturing technology excellence resulted in a record quarterly production of 2.8 gigawatts.

Speaker 3

Of our India, Ohio and Alabama expansions remain on schedule. We expect to invest an additional $1,100,000,000 in a new U. S. Factory, our 5th in the country, which is expected to begin production in the first half of twenty twenty six. Cumulatively, in the year since the announcement of the IRA, we've committed $2,800,000,000 of capital spending, cost manufacturing and R and D in the United States, which we expect will result in the creation of 1700 direct new jobs of the company's website.

Speaker 3

From a technology perspective, we completed a limited our 1st bifacial solar panel utilizing our advanced thin film semiconductor and acquired EMOVA, the European leader in thin film, perovskite and Sigs technology. The call. These investments are expected to accelerate our development of next generation PV technology, including high efficiency Tandem devices. Financials. Financially earned $1.59 diluted share inclusive of a legacy systems business related litigation loss the call and we ended the quarter with a gross cash balance of $1,900,000,000 or $1,500,000,000 net of debt, with additional debt capacity of $1,000,000,000 under our new revolving credit facility.

Speaker 3

We are maintaining our revenue and EPS guidance, including forecasted full year earnings per diluted share of $7 to $8 With that, we conclude our prepared remarks and open the call for questions. Operator?

Operator

Perfect. We will now go into the Q and A.

Speaker 3

Philip. Please go

Speaker 5

ahead. Hi, everyone. Thanks for taking my questions. Two categories. First one on bookings, Looks like your ASP was strong and healthy for bookings ASP at about $0.327 And then you have, Mark, I think you mentioned the addition of another $0.02 of adders.

Speaker 5

Wanted to I'll ask you, what do you expect your bookings to look like ahead? You had a little bit of a quiet period during Q2, but then you ramped it up of subsequent to July 1. Do you think that accelerates now that you have new capacity announced? And then The second category of questions here is, we thought you were sold out for 2024, but in that agreement that you announced today, You highlighted and I think in some of the other agreements over the past few weeks that you have more that you booked for 2024. How are you guys able to do that?

Speaker 5

Did someone did the party cancel their order? Or are you running above 100% utilization? Is there any more volume left to be sold in 2024? And how much is left for 2025? So thanks guys.

Speaker 2

Yes. So I'll take the second one first, Phil, is that so the reason we're able to Still committed some opportunities in 2024 and 2025. It's really twofold. First is, and we highlighted in my prepared remarks that we are using India in 2024 and 2025 for U. S.

Speaker 2

Shipments. Demand in the U. S. Was so strong and we were restructuring some deals with customers that we It meets 24, 25 volume requirements, and then pull through outer years as well where we had a little bit more supply. Those deals canceled out really well.

Speaker 2

So we view some of the India volume. We also have requirements under the set of package that we received in India that there's some amount of exports that need Q2B achieved and now there what we've largely been doing is accelerating the timing of those exports into the first couple of years of production in India and using that to support the U. S. Market. So that's a piece of it.

Speaker 2

The other is of the ramp of our Perrysburg Series 7 Factory is going very well. And That is creating some incremental capacity that's available in 2024 in particular. And then we're looking to full force. Some of the Ohio upgrades that we were talking about before, remember we as part of our overall announcement, we indicated there's about 0.9 Gigawatts of volume that we would use to further throughput and drive more output out of our Series 6 factories in Ohio. We are pulling forward some of those initiatives in order to create a little bit more supply earlier than we had anticipated.

Speaker 2

So all that is helping kind of create supply for 24, 25. The biggest piece that I just want to make sure it's clear is really the volumes we're going to support out of India. I also want to make sure it's clear that India is doing extremely well. It's just that we've got opportunities here in the U. S.

Speaker 2

Market and they're attractive ASPs and we're opportunistically using that volume to serve the U. S. Market at this point in time. Of Bookings ASP, Phil, just to make sure I'm clear, what I said in my script is the bookings average ASP was $0.293 and that did not include sales rate for about half of the volume. And if you include the impact of sales rate, then you would increase that ASP to be north of 30%, maybe in the low 30s when you include that volume No, that ASP impact the volume that we booked.

Speaker 2

It did not include sales rates. The momentum, look, I think there was A little bit of activity going on with maybe people trying to understand the domestic content requirements.

Speaker 3

That didn't slow us down on

Speaker 2

the conversion side. What I would say is that we had a very healthy quarter on conversions. As I indicated, we've now have over $300,000,000 of conversions of existing volumes that we already have in the books that we have converted now for incremental ASP for Delivering Series 7, as well as domestic content requirements. So good volume, good activity going on there. I think the momentum should accelerate a little bit from the announcement of the new facility, the new factory.

Speaker 2

So I do think that will give us incremental supply that we'll better position maybe a little bit of acceleration. But I look at the quarter, we excluded about of a gigawatt of the Energex deal, which was a framework agreement and that's because there's an option effectively associated with that volume. But if I include that, it's another 10 gigawatt quarter essentially. So we've put on a pretty solid streak of 10 gigawatts each quarter. If we can carry the momentum through the balance of the year, we have an opportunity to position ourselves for maybe 35, 40 gigawatts for this year.

Speaker 2

I think it's a very strong result. Given we're going to ship 12 gigawatts this year, we're just continuing to build to that contracted backlog and we're getting great ASPs in order to do that. So I think on balance, we're pretty happy with what we're seeing from a bookings ASP standpoint.

Speaker 5

Great. Thanks, Mark. Actually, just want to since I'm on the line, so I just want to clarify. Your 29.6 of is the ASP for the whole backlog, whereas the 32.7 I was Talking about I think that's the ASP for the incremental bookings since the Q1. Is that correct or just to clarify, February.

Speaker 2

The total backlog at the end of the quarter, which was about 70 gigawatts, that average ASP was 29.6. The bookings since the last earnings call, which was 8.9 was 29.3 of But that did not include sales rate of half the volume. If you include the sales rate, normal sales rate adjuster, our sales rate. That equivalent ASP would be in the low 30s. So those are the numbers.

Speaker 5

Okay, Got it. Thanks. I'll pass it on.

Operator

All right. Thank you. And our next question comes from the line of Brian Lee. Brian, please go ahead.

Speaker 2

Hey, guys. Good afternoon.

Speaker 6

Thanks for taking the questions and congrats on the new factory announcement. I had two questions here. I guess, first off, of the business. On the domestic content rules since they've been out from mid May, what have you've been articulating or I guess maybe the customer feedback has been around the 40% 55% threshold. Is that Basically going to be achieved by just buying Series 7 panels from Alabama and the new site.

Speaker 6

And then would you be expecting more pricing potential? It sounded like you did on volumes from those sites going forward, if you could maybe help quantify. And And then the second question was just on that new factory, any puts and takes on first half of twenty twenty six? Maybe it's a little bit of a nitpicking of the item, but would there be ability to move that up given I think historically you've talked about like a 2 year build cycle. So Is there room to have this even online a bit earlier into the end of 'twenty five?

Speaker 6

Thanks, guys.

Speaker 2

Yes, the domestic content rules, Again, the way it's defined right now is that there are components that will determine of the module is manufactured in the U. S. And therefore is a manufactured domestic product. As we indicated in our remarks is that for Series 7, especially for our new factories, we'll be 100% compliant with all of those requirements. So all those components that have been identified will be manufactured in the U.

Speaker 2

S. Again, that's a strategy that we embarked upon years ago to have a local supply chain. As a result of that, then the full entitlement for the module will be captured at the project level. As you know, there is someone else that meet those requirements. Very few other manufacturers have made announcements in the U.

Speaker 2

S. Of We'll actually manufacture the cell and very few if any will get glass in the U. S. I have yet to see an announcement of anybody indicating availability or contracting for glass in the U. S.

Speaker 2

We've been unique in our position there and being able to capture very strategic partnerships around sourcing of our glass. And so I think we'll be in an advantaged position. Our customers are clearly still trying to do the math. I think there are still questions. But I think there's a high level of confidence that First Solar is the best positioned module to ensure the domestic content bonus, which of It's why we also see such a high volume of conversions that are being done, as I referenced in my prior response to Phil as well.

Speaker 2

So that's where from a domestic content standpoint, we're working very closely. We are providing, we're being very transparent. I know there's been some speculation that Manufacturers are not willing to provide cost level information. We are obviously willing to do that. We would prefer to have this Basically, from a taxpayer perspective, their module price, I think it's a lot easier to do it that way versus maybe the difficulty and the complexity that's being embedded in the requirements right now, but we're managing through that and we're more than willing to accommodate our partners to ensure they get they qualify for the bonus the extent of the module's contribution.

Speaker 2

And they're still probably working through and understanding the tracker and the inverter in particular and how it all aggregates up at the project level. But I think everybody realized that Series 7 in particular for solar in general is going to be meaningfully advanced relative to anyone else manufacturing in the U. S. Today. As it relates to the factory timing, look, we haven't announced the site yet.

Speaker 2

And so we're still working through the site selection. The timing of the site selection, the timing of the ability to get on-site, finishing the permitting, starting to move dirt around and more importantly, energizing, getting transformers and other things to available so we can energize We'll all kind of determine that ultimate start of that manufacturing facility. But I think it's prudent to stick with what we indicated in our prepared remarks. If everything does go well, is there potential to accelerate? Sure, there's obviously potential to accelerate, but we have a lot of work to do before we can determine if that's possible or not.

Operator

All right. Thank you. And our next question comes from the line of Joseph O'Shea. Joseph, please go ahead.

Speaker 7

Hi, thanks everybody. Two questions. First, I'm seeing perovskites and SIGs talked of the doubt. I'm wondering if we might get some sense as to when we might see those turning up in Shipt products and also whether Yes, we're talking about tandem cells or higher efficiency products, whether we might see those begin to show up on in Rooftop. And then I do have one other question.

Speaker 2

Look, I would say on the FrostGuides side of the house in particular, I'm very happy with of capabilities that Zolar brings to the table there. I think it's very complementary to capabilities that our own internal team has. And on the continuum of maybe slightly different approaches, of But both showing demonstrating very good results. And again, there's a combination of challenges, but 1, 1st and foremost, everyone is working through is Stability of the device. Efficiency is obviously important, but you also need something that's stable and for us guys in general have of Historically, had issues and challenges with trying to demonstrate long term durables to stable devices.

Speaker 2

So, Abi there on CIJS6, Kevlar has got some very the capabilities there and record sales that they've demonstrated, I think, north of 23%. And of We think that there's a potential for a tandem technology, thin film, thin film that can get to market sooner of the Perovskites can at least at this point in time and that would be a CAT cell top cell with the CIGS bottom cell. And if we're able to do something like that, then that would clearly give you a higher efficiency product that could expand our addressable market. That's largely why we're investing in the technology the way we are. I mean, we are a module manufacturing technology company.

Speaker 2

We want to be a technology leader. We are world class leader when it comes to thin film devices. Both of these are thin film semiconductors, and we'll continue to evolve the capabilities there. It relates to when we can get to market. That's it's probably too early to determine.

Speaker 2

There's a lot that needs to be done yet to address a number of of hurdles and issues that have to be resolved, but I'm encouraged with at least the platform that we have Very complementary to our world class leadership that we've taken in CATL. These are 2 alternative thin films that can be very complementary and I think can further our technology leadership over

Speaker 7

time. Thank you. And my quick follow-up, Brian alluded to this a little bit. Just Stepping back from the just announced factor and thinking more out towards the end of the decade, should we kind of think about of 18 months to 2 years is a reasonable cadence for your ability to add manufacturing given site selection tools, all this all this kind of stuff or could it be slower or faster?

Speaker 2

I'd market to that of 2 year cycle. I think that's probably the right time line. I mean, there's other issues that we're running into. It also varies where where we're going to go. If we go to India, I would argue potentially India can be a little bit faster.

Speaker 2

U. S. Is running to a number of challenges, especially around construction and timelines to do that. The ability of workers' Access to your energization of the factory. We're still looking at Europe and it depends on the path we go in Europe and that could also maybe be slightly shorter timeline than where the U.

Speaker 3

S. Is right now.

Speaker 2

But I think the best way to look at it is kind of a 2 year timeframe.

Speaker 7

Understood. Thank you.

Operator

All right, perfect. And our next question comes from the line of Julien Dumoulin Smith. Julien, please go ahead.

Speaker 8

Hey, guys. It's Alex Vrabel on for Julian. Just to question on the domestic content one more time. I mean, you alluded there, Mark, Some of the sort of myths and bits that have to be clarified here. I'm just curious, given you guys have already sort of booked some, I guess, ASP uplift in 24 relative to offering domestic content.

Speaker 8

If there's any sort of, I guess, clawback potential from the developer, if they're actually not able to get it, Given some of the clarifications that we're waiting on and I'll throw my second in here as well. When you think about the longer term, I guess, expansion Trinity in the U. S. You guys have sort of historically been about a third of the U. S.

Speaker 8

Market. I think we have upwards of 70 gigawatts announced as far as module in the U. S. Currently, how do you think about sort of your broader market share in the U. S.

Speaker 8

And what that could become over time as we get into the latter half of the decade? Thanks.

Speaker 2

Of As it relates to most of those just as a reminder, most of the conversions that we put in place of That relates to 2023, 2024 and 2025, that's really what the years it sits in. Those are all somewhat I've thought through and envisioned that there's a potential opportunity through the contracts that we've restructured at that point in time, in which we implied Domestic Content. And to the extent certain rules would come through, then there would be and to the extent we provided them with the domestically manufactured product of that. We would be entitled to incremental ASP. In other cases, we left them open and it was really up to the customer.

Speaker 2

Of the call. And if you want domestic supply, then fine, we'll provide it. We have the option to provide it internationally as well. If you want domestic, then we'll negotiate an incremental ASP from that standpoint. So as it relates to any callbacks or provisions in those of adjustments and modification amendments that we did.

Speaker 2

Really, there's nothing embedded in those agreements that would result in that. Now I will say on new volumes that we're booking now, there are provisions in there that would require of the call. We do not meet the representations that we gave to the customer, Right. So for example, I said that our Series 7 product would be a domestically manufactured product and therefore the List of 10 or how many components there are would all be manufactured in the U. S.

Speaker 2

And therefore the product would be domestically manufactured. Of And we've given ourselves some buffer relative to that. And to the extent we don't manufacture the product as currently envisioned To ensure that all those components are domestically manufactured, yes, and there would be a potential impact, LDE, for that LacaMed performing effectively, right? But that's all within our own control. And if the project qualifies or doesn't qualify, of we're held harmless.

Speaker 2

As long as we meet our requirements, whether the project level hits its 40% or 55% or whatever it may be, of There's no recovery or clawback from Verso. The only thing we have, which you would expect under any contract, we have an obligation to comply and we the presentation around it being a domestically manufactured product. And therefore, those components, which have been identified, have to be manufactured in the U. S. And really, I see that it's not a lot of risk because that's what we're doing already.

Speaker 6

All that's being sourced here in

Speaker 2

the U. S.

Speaker 4

Of. Got

Operator

it. Sorry, I think I cut you off there a little bit. Our next question comes from the line Vikram Bagri. Vikram, please go ahead.

Speaker 9

Hi, there. I was hoping that you could give a little bit more I have color on the expected increase in module gross profit relative to your prior expectations. Just kind of what's driving that? What are the puts and takes there? How much of that benefit is coming from sales freight versus manufacturing efficiencies?

Speaker 3

News. Yes. So it's a little bit of both. You're definitely seeing a drop in sales. We did forecast that it will drop throughout the year, perhaps dropped a little bit earlier in Q2 than we had expected.

Speaker 3

So I'd say more than half of what we added In terms of module gross profit to the guide is associated with better sales rate, but there is a little bit of improvement in the core relative to our previous guide as well. Importantly, just to make sure it's clear, we said that we're not changing our forecasted Section 41x benefit. So it's not an increase of the cost of goods line or in the gross profit line associated with reduction in cost of goods from IRA benefits. It's all fitting across core cost of production and sales, right.

Speaker 5

Got it. Thank you.

Speaker 9

And just one follow-up. In terms of the mix of deliveries. You mentioned some recent contracts, which have projects in Europe as well as in the U. S. How are you thinking about supplying those?

Speaker 9

Could we expect any supply coming from the U. S? And then just how do you think about of the pricing dynamic in those markets where ASP is a bit lower than we see domestically. Fox.

Speaker 3

Yes.

Speaker 2

So we currently are not envisioning sourcing anything from the U. S. To Europe. Now could there be a particular deal that we've contracted That would because of a particular VIN that we needed for that project or a particular product that we needed, of could it come from the U. S.

Speaker 2

Potentially, but that's not the intent. The intent would be to support Europe out of our international factories of Malaysia and Vietnam. Obviously, Malaysia and Vietnam are also our 2 lowest cost factories before India gets up the when India is up and running, then it will become our lowest cost factory in the fleet. But right now, there are 2 lowest cost factories. And yes, we are And we have global customers, right, very large utilities for oil and gas majors that One Global Supply.

Speaker 2

They have projects in the U. S, they may have projects in India, they may have projects in Europe and they want to have product and enter into agreements with Persol that we can source not just a particular region, but multiple regions. No different than the Energex deal that we announced. I mean, that was volume for the U. S.

Speaker 2

And included volume in Israel and included volume in Poland, at least potentially identified, which is where they're developing. We will have we do have to differentiate pricing in some regards, with the competitive of those opportunities relative to where other global pricing has gone. But we still will get a premium. We're not in a position where we're having to price liquidation type of fire sale ASPs like others are doing right now because there's a long term relationship that we have with Strategic Partners. And I think using Energex as an example, to the best of my knowledge, They're 100% sourced to First Solar regardless of where their projects are.

Speaker 2

But I have to make sure that they can be competitive in the markets in which they compete in. And I can't

Speaker 4

of.

Operator

Questions we have time for today. We would like to thank everyone for taking the time to dial in today. You may now disconnect.

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Earnings Conference Call
First Solar Q2 2023
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