Operator:

Good afternoon, everyone and welcome to First Solar's Second Quarter 2024 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Mark Widmar:

Good afternoon and thank you for joining us today. Reflecting on the first half of 2024, we are pleased with our ongoing efforts to strengthen the fundamentals of our business. With solid operating and financial performance, selective incremental bookings, robust pipeline of demand, including a near -- a recently signed 620-megawatt module supply agreement subject to the achievement of conditions precedent with a new U.S. customer that will be supplying power to a hyperscaler. And investment in technology, R&D infrastructure and manufacturing expansions, we continue to solidify our market position through strong execution. Our balanced approach to growth, profitability and liquidity, combined with multiple technological and business model points of differentiation enable us to deliver value for both our customers and our shareholders. Beginning on Slide 3, I will share some key highlights for the second quarter. From a commercial perspective, we continued our disciplined approach to bookings. Since our last earnings call, we have secured a net 0.9 gigawatts of bookings with an ASP of $0.316 per watt, excluding adjusters where applicable or $0.334 per watt, assuming the realization of adjusters where applicable and in each case, excluding India domestic sales. This includes a 0.4 gigawatt debooking related to a termination for convenience exercised by one of our European power and utilities customers who is selling a portfolio of U.S. development assets as referenced on our last earnings call and who is obligated to pay the associated contract termination payment. This brings our year-to-date net bookings to 3.6 gigawatts. Our total contracted backlog now stands at 75.9 gigawatts with orders stretching through 2030. From a technology perspective, since our Q1 earnings call, we have established a new world record CadTel research cell with a conversion efficiency of 23.1%, commissioned new critical R&D infrastructure in Ohio and remain on track to launch our CuRe program in Q4 of this year. Our CuRe program is expected to increase energy production in real world conditions through improved module temperature coefficient, bifaciality and degradation rate. Additionally, we have announced the ownership of certain issued and pending patents related to the manufacturing of TOPCon crystalline silicon solar cells. And while Alex will provide a comprehensive overview of our second quarter 2024 results, I would like to highlight our ability to deliver financially with second quarter earnings per diluted share of $3.25 and a quarter end net cash balance of $1.2 billion. Despite this strong execution and our success, delivering on the manufacturing technology, customer and financial commitments, we must acknowledge that our industry faces varying degrees of increasing external uncertainties, particularly related to policy, supply conditions and evaluations of strategic direction and capital allocation by certain large multinational companies. These will be discussed later during the call. Turning to Slide 4. Our growth plans remain on track. The expansion of our Ohio manufacturing footprint has been completed and commercial shipments began as scheduled at the end of the second quarter. The completion of this phase expands our manufacturing capacity into the state by almost 1 gigawatts to nearly 7 gigawatts. In Alabama, we expect to complete the installation of tools, complete plant certification and commence production this quarter with the first commercial shipments from the plan expected in Q4 of 2024. We are pleased with the speed at which we're able to construct, equip and commission the 2.4 million square foot facility, achieving this in approximately 24 months from the investment decision. Our new Louisiana facility is also on track with the start of commercial operations expected in the second half of 2025. Furthermore, we commissioned the Jim Nolan Center for Solar Innovation earlier this month. This new research and development innovation center in Ohio is the largest facility of its kind in the Western Hemisphere. The 1.3 million square foot facility includes a high-tech pilot manufacturing line which we expect will allow us to produce full-size prototypes of thin-film and tandem PV modules in a manufacturing sandbox, freeing up our commercial production lots. In addition, we are on track to commission our new perovskite development line at our Ohio campus in the second half of 2024. Combined, these new facilities represent an investment of nearly $0.5 billion in American R&D infrastructure. We believe that thin-film research is critical for commercializing multi-junction tandem devices which are anticipated to be the next disruptive innovation in the solar industry. While the U.S. leads the world in thin-film PV under First Solar's stewardship, China is racing to close the innovation gap and we expect that our strategic investment in R&D infrastructure will help us maintain our nation's strategic advantage in thin-film technology and position the next generation of disruptive, transformative solar technologies to be American-made. Turning to Slide 5. We continue to progress our technology roadmap and during the quarter, established a new world record CadTel research cell conversion efficiency of 23.1%. This achievement certified by the United States Department of Energy's National Renewable Energy Laboratory was accomplished at our California Technology Center. We remain on track to launch CuRe at our lead line in Ohio in Q4 of this year and following the pull-in of CapEx discussed at our previous earnings call, intend to accelerate replication across the fleet beginning in late 2025, with our Vietnam and third Ohio facility. Additionally, we announced the ownership of issued and pending patents related to the manufacturing of TOPCon crystalline silicon photovoltaic solar cells earlier this month which we continue to leverage as we pursue multiple pathways towards our goal of developing the next transformative disruptive tandem solar technology. This portfolio which includes issued patents across various jurisdictions, including the U.S. and pending patents in the EU and Japan has validity extending to 2030. We are mindful that there have recently been a number of TOPCon patent ownerships announcements and several litigation claims related to particular aspects of TOPCon cell production. Based on thorough and ongoing analysis, including the engagement of third-party legal and technology experts, we firmly believe in the value and strength of our patents and are investigating several leading crystalline silicon cell manufacturers for potential infringement. If infringement is discovered, we intend to challenge the ability to manufacture, assemble and sell infringing TOPCon technologies by pursuing enforcement, licensing and other measures to safeguard our rights. I'll now turn the call over to Alex to discuss our bookings pipeline and finances.

Mark Widmar:

All right. Thank you, Alex. As reflected by remarks at the beginning of the call, we are pleased with our financial and operational execution for the second quarter. We have continued to deliver on our commitments and have largely advanced our planned initiatives throughout the year thus far, such as progressing our U.S. manufacturing capacity expansion on schedule, commissioning our research and development infrastructure build-out on plan and maintaining a disciplined approach to new bookings opportunities. That said, we are also mindful of several externalities which may impact the industry as a whole, including First Solar. Among these externalities we are most frequently encountering are the uncertainties related to politics and policies, irrational global supply conditions and the evaluation of strategic directions and capital allocation by certain large multinational companies. Firstly, with the November election fast approaching, the solar industry is again facing an uncertain policy environment. The impact of this uncertainty became more apparent as the second quarter progressed. We have observed increasing constraints on access to capital, both for early-stage solar technology companies seeking to finance the next stage of their growth as well as for the established companies looking to build domestic manufacturing capacity. Our financing parties wait to make investment decisions until they have a clear view of the policy picture. This uncertainty has also impacted developers evaluating risk and returns within project pro formas and which comes at a time when, as mentioned earlier, some oil and gas and power and utility developers are contemplating the pivot from renewables to prioritizing fossil projects. The potential for Republican control of the presidency in both Houses of Congress has given rise to concern over the prospect of a legislative reconciliation process or use of the Congressional Review Act adversely impacting the Inflation Reduction Act legislation or its related regulations. A change in the executive administration alone, regardless of the results of the Senate and House elections, has raised similar concerns of the potential use of executive orders to block or delay implementation of IRA-related guidance and the administration of both published and unfinalized regulations. While we cannot predict the outcome of the November election or what a Republican suite would mean for renewable energy industry and trade policies, we can help inform policymakers across the political spectrum of the significant economic and strategic benefits of promoting and securing a robust domestic solar energy manufacturing base and how policies, such as 45X of the IRA, significantly contribute to the economic life of our nation's communities, particularly those located in traditionally red states. According to an economic analysis commissioned by First Solar and conducted by the University of Louisiana, Lafayette, our investments are already delivering tangible value by creating jobs and raising wages for American workers. Our existing facilities, combined with our expansions in Ohio and new facilities in Alabama and Louisiana, are expected to see us support over 30,000 direct, indirect and induced American jobs by 2026 and $2.8 billion annually in labor income. Our growth trajectory and long-standing commitment to investing in local supply chains is estimated to support 7.3 jobs nationally for every First Solar job created and is expected to add over $10 billion annually to the country's economic output by 2026. We are demonstrating that investing in American solar manufacturing, innovation and supply chains delivers enduring job creation and economic value, solidifying solar manufacturers' role in Americas, all of the above approach to energy security. We believe our model of high-value domestic manufacturing is the towering example of what are the art of the possible is when the nation follows through on bipartisan goals of countering China's ambition to dominate critical supply chains. Our manufacturing and domestic sourcing is also an example of capturing and retaining maximum value in the U.S., leveraging it to spur cycles of innovation to advance American technological leadership and attract and retain an enduring workforce. This is, however, a relatively unique example. While intended to enable the growth of domestic renewable manufacturer and value chains, we believe Section 45X of the Inflation Reduction Act of 2022 can and must be strengthened by establishing guardrails and prevent companies controlled by, owned or subject to the jurisdiction of adversarial governments such as China from receiving U.S. taxpayer dollars. We believe that any legislation that establishes these guardrails will help reinforce the IRA's intent of encouraging true value in job creation and retention across the solar value chain. A message we believe resonates with policymakers across the political spectrum. Despite the political uncertainties ahead, a look back on the quarter reflects several positive developments in the trade environment. Over the past quarter, we have seen the United States government continue to address systemic overcapacity in China by leveraging the tools and the trade policy toolbox. Recently, the Biden-Harris administration acted to close a loophole in trade law by removing the Section 201 bifacial module exemption which the Trump administration had also attempted to remove and announced plans to double the Section 301 tariffs on solar cells and modules imported from China, another trade measure initiated by the Trump administration. In addition, the 2-year anti-circumvention solar bridge moratorium expired in the second quarter and the administration pledged to crack down on stockpiling through "vigorous enforcement" announcing that importers which brought product and tariff free during the moratorium will be required to certify as to module installation by the December 2024 deadline with detailed information about the imported modules being deployed or pay the required tariff. In June, the U.S. International Trade Commission by unanimous and notably bipartisan decision, issued a preliminary determination finding a reasonable indication of material injury caused by the dumping of solar cells and modules by Cambodia, Malaysia, Thailand and Vietnam. Material injury caused by subsidies by Malaysia, Thailand and Vietnam and a threat finding caused by subsidies in Cambodia. The unanimous bipartisan vote supports the petition of the American Alliance for Solar Manufacturing Trade Committee which First Solar is a member and underscores the harm caused by the unfair trade practices of China solar companies and their affiliates in Southeast Asia. The alliance is currently evaluating filing critical circumstances petitions in response to the surge of injurious solar imports from the subject countries in the wake of the Department of Commerce's initiation of the trade investigation. For example, recent data suggests import increases of more than 60% from Malaysia and Vietnam and approximately 19% from Thailand. Such petitions are filed with the United States Department of Commerce determines that critical circumstances exist, cash deposit requirements can be imposed retroactively on solar cells and panels entering the country up to 90 days prior to the date of the Commerce's preliminary determinations. Critical circumstances can be alleged at any point until just before Commerce's final determination. Based on the Republican campaign platform which has expressively contemplated employing tariffs to increase trade imbalances, we believe it is reasonably foreseeable that if administration were to change could result in incremental tariffs on the Chinese crystalline silicon supply chain operating from Mainland and through its Southeast Asia and other satellite countries. While broadly beneficial to us given our significant and expanding U.S. manufacturing base, any new universal tariffs on imports could adversely impact the gross margin related to our Malaysia, Vietnam and India production sold into United States. Finally, it is also important to note that regardless of the outcome of the November election, utility scale demand for renewables is expected to continue to grow. The sources of this projected substantial demand are varied, including from data center, the reshoring of manufacturing, cryptocurrency mining, the heating and cooling, to name a few. Critically, such demand is generally not dependent on policy-enabled drivers. Solar continues to demonstrate that in many U.S. locations, it is the lowest cost source of energy and there are a few other generation sources that can be expanded at scale or notably deployed as quickly as solar, a critical attribute for end users who place a priority on time to power. In addition, given the presence of long-term fixed price PPAs, relatively predictable degradation, few moving parts and an unlimited free fuel source in the form of sunlight, solar is by nature, is deflationary energy generation asset, further contributing to the nation's economic growth. Moving on from political consideration. The second externality, a long common theme in the solar industry is irrational oversupply, driven almost exclusively by China's well-documented ambitions to dominate solar supply chains. The unsustainable market conditions resulting from this behavior continue to be an adverse macro condition confronting module manufacturers like First Solar that are committed to competing on a level playing field and on the basis of their merits and undertaking growth that is underpinned by demand. These market-distorting practices have resulted in a 2024 year-end projected U.S. oversupply position of approximately 40 gigawatts. Oversupply conditions in the EU continued unabated as policymakers struggled to provide a coherent policy response to ensure sustainable manufacturing conditions with the -- in the European block. In India, a challenged ASP environment is a large part a consequence of Chinese cell dumping, that is artificially lower pricing and challenges the country's aspiration to end its reliance on an adversarial by developing a domestic manufacturing base that serves a domestic market. Despite several of our crystalline silicon competitors publicly reporting significant financial losses for the first half of the year as they work to shed excess inventory and rationalize capacity, the Chinese solar industry continues its race to the bottom through overbuilding capacity. Ignoring clear indications that the market cannot sustain such levels of production, this results in continued dumping of products into key markets at depressed prices. Despite the recently published proposal by China's Ministry of Industry and Information Technology seeking to raise the minimum capital ratio for new PV capacity and impose intellectual property ownership criteria related to capacity expansion, there is skepticism that such measures will be effective in curtailing production expansions and reshoring supply and demand balance. Particularly as a consequence, we see China capacity expansions -- excuse me, particularly as we see -- continuously see China capacity expansion plans announced. In a market challenged by irrational oversupply and in sharp contrast, the results recently announced by some of our Chinese competitors, we have continued to deliver strong performance as reflected by our year-to-date earnings, recent bookings and total backlog. And while the crystalline silicon industry faces potential obstacles to innovation due to weakening fundamentals and pending legal challenges to its freedom to operate, including as it relates to First Solar's recently announced TOPCon technology patents. During the quarter, we established a new record CadTel research cell, remain on track related to our CuRe launch and fleet replication schedule and commissioned our new R&D facility. The third externality we have observed relates to certain multinational companies' strategic direction and capital allocation. As referenced on our prior earnings call and during this call, we're observing some multinational oil and gas and power and utility companies, particularly those based in Europe, considering pivots from renewable project development back to fossil projects in an effort to increase returns. For example, we've been made aware that a U.S. affiliate of a European-based multinational oil and gas customer is evaluating their strategic direction with regards to renewable project development. Notwithstanding, we believe the underlying fundamentals of solar remain robust. As mentioned in our last earnings call, we are seeing the potential for a significant increase in demand as the decade advances, driven in part by data center load growth. Ten of our largest customers have ongoing and future projects that are serving the nation's largest hyperscalers, deploying our technology for the balance of the decade. According to an analysis by the Boston Consulting Group, data center-driven energy demand is expected to increase by 15% to 20% annually through 2030. Total U.S. power consumption is expected to increase by 3% per year through the end of this decade, with data centers alone expected to contribute more than 60% of the total growth. We believe that this potential hyperscale related demand, coupled with their publicly stated commitments to address their energy needs through clean generation, along with our strong track record of partnering with developers to provide solutions for these off-takers, places First Solar in a strong position to have an important role in powering the industry of the future. As demonstrated by our recently signed, 620-megawatt module supply agreement subject to additional conditions precedent with a new U.S. customer that will be supplying power to a hyperscaler. Underlying fundamentals related to fossil fuel retirements, the movement towards electrification, utility and corporate demand for clean energy, scrutiny of environmental impact and social consciousness of supply chain providers and load growth, especially related to AI-driven data center demand, aligned with First Solar's position as a leading provider of eco-efficient modules and its approach to responsible solar. We're also seeing increased demand driven by the modified domestic content bonus Safe Harbor guidance issued by the Department of Treasury and IRS in May of 2024. The updated guidance sets out a more practical points-based calculation rather than a cost-based calculation for a renewable energy project to qualify for the bonus, placing a high value on vertically integrated manufacturing that utilizes domestic procured components, a profile exemplified by First Solar's growing domestic manufacturing operations. Given the high domestic content embedded in our U.S. produced Series 6 and Series 7 modules which critically feature a domestically manufactured cell and incorporate domestic components for either all or almost all of the points eligible components specified in the elective Safe Harbor in the May 2024 updated guidance, our customers' projects can satisfy key aspects of the domestic content bonus criteria just by procuring First Solar modules. On the new elective Safe Harbor, there are opportunities for First Solar to blend its deliveries to customers with modules produced across its global fleet, potentially increasing the optimization of all of our factories while enabling our customers to qualify more projects for the domestic content bonus. In summary, while external factors such as the outcome and impact of the forthcoming election and the continued impact of the global Chinese-driven overcapacity on supply present challenges, First Solar continues to focus and deliver on our planned initiatives. Through continued execution, active policy engagement, utilizing our balanced approach to growth, profitability and liquidity and leveraging our points of differentiation, we believe we remain well-positioned to navigate these challenges. To conclude, Alex will now summarize the key messages from today's call on Slide 11.

Operator:

And your first question comes from the line of Philip Shen with ROTH Capital Partners.

Mark Widmar:

Phil, on the ASPs, yes, so we did have a cancellation during the quarter which we referenced which is the 0.4, so that is the delta. The ASPs that we reported net of the cancellation is in line with where the gross ASPs would be as well. The actual cancellation was slightly lower but don't take it as a material delta. The numbers are in line with the net numbers that have been reported from that standpoint. Bookings from a standpoint of momentum, look, there's -- what we've -- our strategy has been, let's be patient and let's make sure the market has an opportunity to continue to digest all the information that's coming about, right? And we believe there's still even more to come and we kind of alluded to a few. One is the potential announcement of critical circumstances. We think that there is a momentum potentially for addressing the foreign entity of concern and the potential use of taxpayer dollars to go to adversarial countries. We think there are other initiatives that could be focused on examining the India imports coming into the U.S. and the potential use of Chinese cells in the manufacture of those products and brought into the U.S. market. And we also believe that there's still, as previously indicated in the domestic content guidance that was communicated in May that the current administration is evaluating the potential use of integration, I should say, of a wafer to qualify for domestic content. So we're just going to try to be as patient as possible, when you throw in the mix of recently announced TOPCon IP. We're going to be patient as possible to let all that information to be digested with the market to the extent we can see ASPs that are attractive to us in the windows that we're trying to book out into and I still want to continue to remind people that these are windows, their bookings are going out into '27 and '28. When we look at the bookings last quarter and you include the tech adders which push us north of $0.33, I think we're moving in the right direction and where we feel comfortable where pricing will be. So I think there's momentum there. I think I want the market still to digest all of the uncertainty. And once that gets better understood into the marketplace, I think you'll see more momentum in our bookings as we close out the year. Having said that, there's still an election in front of us but I still think a lot of people are going to be very -- reluctant potentially is a good use to word -- a good word to use for booking into '27 and '28 with less certainty on policy environment. So that momentum may impact us as well. But I do think there's an opportunity here to see a little bit more momentum as a lot of this information is digested and we'll see how we progress through the balance of the year.

Jon Windham:

I guess as you've moved forward on Alabama, the focus will turn to Louisiana. And just, I guess, a couple of questions on the same topic. Any key milestones that you would point us to over the next 6 to 9 months to keep track of that project? And then at what point do you think we'll get a little bit more specific visibility on when that ramps beyond just saying the second half of 2025. Thanks again and a great result.

Operator:

And your next question comes from the line of Andrew Percoco with Morgan Stanley.

Mark Widmar:

Yes. Look, I think it's -- the answer is both unfortunately. I think initially there will be -- there'll be some pause with trying to understand exactly the policy environment and what potential implications there will be if there is a new administration and Republican control. But I think as you see through that dust, it's going to be very clear that in my discussions in D.C., clearly, geopolitical tensions with China aren't getting any easier when you go to the Republican side of the conversation. There are going to be tariffs that are going to be imposed which are going to a better advantage First Solar and our domestic footprint for sure. And there's a real reluctancy of using U.S. taxpayer dollars to advantage Chinese owned and controlled company. So all that, I think, plays to our strength. But at the same time, I think everyone's going to want to understand kind of the environment, so there could be an initial pause. And then I think once that happens, you could see further acceleration. And in some cases, you may even see a pull forward of projects from '26 into '25 if there's a view that there's a legislative process potentially that could change certain provisions within the IRA, there may be an acceleration of everybody trying to monetize as much as they can in '25 before budget reconciliation process could potentially impact the legislation and call that maybe late Q3 of '25 kind of view of the world. So I think we're going to see a little bit of both, maybe some pause just to assess. But then I think what likely plays out with the Republican controlled D.C. would be a very favorable outcome for First Solar's domestic manufacturing.

Operator:

And your next question comes from the line of Mark Strouse with JPMorgan.

Mark Widmar:

Yes. Look, on the last question, I guess, first, I'll hit on that is, look, there is a chance. We're actively engaged right now with negotiations on a portion of that volume. But at the same time, we're just trying to be balanced in our views. We only have 5 months left in the year. The timing of the requirement for those modules and what project, it has to be something that is not too far long in the design phase because if it's already been designed to a different product and then to switch the engineering drawings and everything else and potentially even the supply chain balance the system that they would -- they are currently procuring could have to be modified as well. So I think it's best just to assume that it does not happen this year. But clearly, we're going to want to sell through that volume as quickly as we can. As it relates to the bookings, yes, there is -- to me, there's really 4 large bookings. There was -- in the current quarter, forget about the debooking. In the current quarter, there was 4 large ones. And I'm also including the one booking that subject to CP -- contracts subject to CP, right which is a 600-megawatt project. So you include that in there. That deal is completely -- is finalized all terms and conditions and ASPs and all that stuff is finalized. And it's subject to a developer getting actual finalizing control of a site on their end. And we hopefully will see that close out this upcoming quarter. So I look at it, there's 4 large bookings for the quarter or 3 bookings plus a contract which aggregates up to about 1.8 gigawatts when you look at it from that perspective. And most of that volume is kind of '26, '27 and '28. So it is out into a longer-dated window and is still maintaining good ASPs. And while we always want to make sure that we're highlighting the impact of those adders as we indicated, we're starting our CuRe lead line this quarter and we'll be replicating across the fleet. So by the time we actually deliver against for those projects, we'll be able to monetize the full value of those adders. So I look at the kind of the ASP numbers that we should be most reflected upon is the ASP with the adder. And so good projects, a good window which we need to book with, good counterparties, happy to continue to see more and more First Solar modules being associated with data center and expansion of data centers. So overall, we're pretty pleased with that. And we'll continue to see customers and willingness to move forward and engage. I do think given the winners that we're booking out into, there will be some that are going to continue to sort of maybe evaluate and assess until there's better clarity exactly what where the policy environment will land in D.C. and no different than what we want to do the same thing as Alex indicated.

Brian Lee:

Sorry to beat a dead horse but on the bookings front, just had a pricing question, were all the bookings from U.S. fabs in the quarter? Or was there some from Asia in there as well? I'm just trying to, I guess, get a sense of like-for-like pricing given your comments from the last call that U.S. pricing had moved maybe $0.03 to $0.04 per watt higher in recent times owing to tariff uncertainty. Is that kind of still what you're seeing mid-30s level in the U.S. specifically? And then second question I had was just big picture thoughts on new CapEx and timing of any kind of next manufacturing capacity expansion, whether new technology tandem or Series 7, what are kind of major bottlenecks decision criteria you're thinking about to potentially move forward on a decision there?

Operator:

And your next question comes from the line of Vikram Bagri with Citi.

Mark Widmar:

Yes. Look, I think what we tried to highlight in the call is that there is externalities right now that create some amount of uncertainty. And one is, obviously, the political environment, we spend a lot of time around that. The other is clearly the significant overcapacity that we continue to see unabated from China and we're just trying to continue to highlight that and also emphasize why there's -- it's so important for us to be very aggressive on a trade policy standpoint, whether here in the U.S. or in India or even actions and initiatives we're trying to do in the EU, right? So we think those are all important things that everyone needs to be mindful of. The one -- as it relates to whether this calls into question our backlog, those 2 are not calling into question the risk of our backlog from a contractual standpoint, right? Now if for some reason, there's a new policy environment, the Republicans were to getting into control and they eliminated the tech-neutral ITC or minimized it, reduced it, that could have an impact on our viability of our customers' projects and their associated returns. I mean, clearly, that's going to have a ramification to First Solar because now project fundamentals have modified. There's no view of that per se happening but it's an indication of when we go through the political uncertainty or the election process that we're going to be going through and if there's a Republican control, there's a number of things that could be addressed as part of the IRA that may or may not have any potential implications on us. We're just trying to highlight that as such. So no impact on the backlog from that standpoint but for some dramatic pivot or change into the market. The one we are trying to highlight is that we had -- look, this is not news. You can go and look at a lot of oil and gas majors, large oil and gas majors. And they are assessing viability of project returns in solar and deployment of capital and allocation of capital. We had a European power utility company that was on our books for over 1 gigawatt of volume. They end up taking 600 megawatts or so of that volume and then terminating about 400 megawatts of that volume because they have made a decision to exit the U.S. market. That happens. But as we said in the last call, the good thing about that is on the side of that equation is somebody acquiring their development portfolio happens to be a long-term First Solar customer who is 100% sole source to our technology. So it's a good thing long term. It creates near-term disruption. This customer already had the framework agreement with us. So near term, they don't need incremental modules to build out that development pipeline which they're acquiring. But longer term, that just further establishes us with a higher penetration of market share. The -- we also highlighted in India, there was a large oil and gas major who, while it was not a booking, it was a contract that we have that they're now selling the business. And as a result of that, there's a termination associated with it. They've got a 30-day period in which to cure it. If they don't, then they're going to pay us a termination payment. So there's things that are happening that are around us that we're just trying to make sure people understand that as these large multinational companies either invest or further accelerate their investments or decide to decelerate, it could have an impact on us. In the backdrop to all this other stuff happening, we have others like the Brookfields of the world who are acquiring developers. So they're on the other side of the equation. They're making acquisitions here in the U.S., they're making acquisitions in India and so on and even in Europe and we have relationship with them as well. So there's just this intermix of the stuff happening right now we thought it was important that people understood. It shouldn't be a surprise, especially as large oil and gas majors they've been highlighting this CEO changes, other things that have happened and the assessment of ultimate deployment of capital and where solar fits in that strategy. So Chevron, the last one you highlighted. Look, I don't think -- at least the interpretation that I continue to get from my team is probably very little impact. A lot of the IRA and some of the guidance associated with the IRA where tax regs and tax rules generally not really in kind of the bull's eye of where you would focus on from the Chevron deference. And so I don't think there's any significant exposure. We know there are some concerns maybe around hydrogen and some of the other interpretations that were provided. But at least as it relates to domestic content or the manufacturing tax credit and those types of things, we don't see Chevron impacting that at this point in time.

Operator:

And that does conclude today's conference call. You may now disconnect.

Operator:

Good afternoon, everyone, and welcome to First Solar's First Quarter 2024 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded.

Richard Romero:

Good afternoon and thank you for joining us. Today, the company issued a press release announcing its first quarter 2024 financial results. A copy of the press release and associated presentation are available on our website at investor.firstsolar.com.

Mark Widmar:

Good afternoon and thank you for joining us today. We are pleased with our start to 2024 with good operating performance, selective year-to-date bookings of 2.7 gigawatts with an ASP over $0.31 per watt excluding adjusters or $0.327 per watt assuming the realization of technology adjusters and solid financial performance.

Our year-end 2024 net cash balance guidance range has been revised due to 4 factors:

our selective accommodation of customer schedule shift requests, potential sale by a customer of a U.S. project development portfolio, our strategic approach to new bookings and higher CapEx.

Alexander Bradley:

Demand continues to be robust with 2.7 gigawatts of net bookings year-to-date with an ASP of $0.313 per watt before adjusters, leading to a resilient contracted backlog of 78.3 gigawatts. Our continued focus on manufacturing technology excellence resulted in a record quarterly production of 3.6 gigawatts, and our Alabama and Louisiana factories and our R&D innovation center and perovskite development line remain on schedule.

Operator:

[Operator Instructions] We'll go first to Mark Strouse, JPMorgan.

Mark Widmar:

Yes. All right. Thanks, Mark. Look, since the ALMM has gone back into place, we are seeing pricing move up in the market. Again, ASPs, generally in India, are much lower than what we see here in the U.S. But they have moved up 5% or 10% from where we saw them before the ALMM, so moving in the right direction in that regard. I do think that with some of the other initiatives that we have in place and especially as we move forward, towards the latter half of this year, I think we could see even firm pricing as we exit this year going into next year, which is encouraging.

Andrew Percoco:

So I guess, I mean, over the last few quarters, you guys have been highlighting that you expect bookings growth to slow. But I guess I'm just curious now that you've got some headlines around the potential removal of the bifacial exemption, the new AD/CVD petition and Yellen's commentary on China, I mean, shouldn't that be an accelerant for bookings? I get that you guys want to be selective because of your capacity position. But just curious on your updated thoughts on what you're seeing and expecting for bookings for the remainder of the year now that policy seems to be moving in your favor, and you've also got growing demand for clean energy in some of the AI data center markets that you guys had alluded to earlier in the call.

Philip Shen:

First one is related to the termination of convenience clause. Can you talk about how much of a buffer you guys might have to meet your guide, even if all the terminations -- termination for convenience clauses in '24 and '25 are exercised?

Mark Widmar:

Yes. And then on the pricing side, yes, so I somewhat made the statement on one of the earlier questions as well. We clearly are seeing the benefit as the market pricing has clearly firmed up and is moving up. If you look at just what we booked this last quarter before any of the adjusters, it's $0.30. If you look at the graph that's in the presentation slide, you can see that really none of that happened in April. So all that was really bookings that happened in the first quarter, which is really before any of the indications of this case started to get into the marketplace. So none of that really is reflected yet into -- so none of that impacted the Q1 bookings that we just reported.

Operator:

The next question is Brian Lee, Goldman Sachs.

Moses Sutton:

What would be the biggest consideration in determining whether you add another factory? I know the pace of bookings, that they're naturally slow considering how far out you booked. But if the industry needs, let's say, 50 to 70 gigawatts per annum by late decade of ground mount in total and considering your market share position is further improving, could at least another factory would be viable in locking interconnection bottlenecks, the poly-based competition unknowns as they ramp up in the U.S. or just waiting on developer visibility to get more confidence here for these out-years?

Vikram Bagri:

I realized 5-in-1 question is the way to go, so I'm going to try that. Mark, you previously commented that excess panel inventory in the U.S. was nearly 30 to 40 gigawatts at year-end '23. A lot of debate about how that -- how much of that excess inventory is now. I was wondering if you can share some color on where you think that stands. And the reason for debate is the steep price increases as soon as the petition was filed indicates some level of concern that the excess inventory might not be that high.

Mark Widmar:

All right. Please come back with me on some of this because I want to make sure I got some of the questions. I'll start with the last one. The bookings that we reported really were all done from -- what was our -- was it in Feb 20? Feb 20, whatever. Our earnings call was at Feb 27 or 28, whatever the date was, and really through March 31. So that 854 megawatts, there's very little of that, that happened in the month of April. That's probably what I was trying to say before, is that the indication of a potential case for -- against Southeast Asia really wasn't into the market at the time that we were negotiating and closing on that booking volume.

Vikram Bagri:

You already answered, Mark. I was asking if you have a hydrogen customer who might not take the delivery. If you could feed out those volumes in the spot market and benefit from higher prices. But Alex already answered.

Kashy Harrison:

So I'm going to follow Vikram and just ask a bunch at once as well. First one is on AD/CVD. Does your alliance expect to ask for critical circumstances if the Department of Commerce accepts your case? And then as we think about just critical equipment shortages in the market, I'm just curious if you know what proportion of your customers have secured all their critical equipment, hot transformers, high-capacity circuit breakers for their project development needs over the next several years just given how long those lead times are.

Alexander Bradley:

Let me just take the credit one, and I'll pass it back to Mark. The credit was higher than that. So we had $194 million in the quarter. I think the guide was $190 million, so a little bit over. If you go back into the Q, there's a few moving pieces in the government grants receivables. So the number for Q1 was $194 million.

Operator:

And everyone, that does conclude our question-and-answer session. It does also conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.

Operator:

Good afternoon, everyone, and welcome to First Solar's Fourth Quarter and Full-Year 2023 Earnings and 2024 Financial Guidance Call. This call is being webcast live on the Investors section of First Solar's Web site at investor.firstsolar.com. At this time, all participants are in a listen-only mode. As a reminder, today's call is being recorded. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Mark Widmar:

Thank you, Richard. Good afternoon and thank you for joining us today. I would like to start by noting that this month marks the 25th anniversary of First Solar's founding, making us one of the oldest and most experienced solar module manufacturers in the world. This is a remarkable milestone in a journey that has positioned us as the western hemisphere's leading solar module technology and manufacturing company. While we're not the only American solar manufacturer to come into existence at the end of the last century, we're the only one of scale to remain today. However, this is not simply a story of survival, but one about the value of long-term strategic decision-making underpinned by a differentiated technology and business model, driving value creation for our shareholders and our partners. Ours is a story of innovation, values, competitiveness, and perseverance. And we are proud of our work towards leading the world's sustainable energy future. As our journey continues, few years have been as consequential to our long-term growth strategy as 2023. Over the past year, we expanded manufacturing capacity mobilized at our latest announced facility in Louisiana, produced and shipped a record volume of modules, expanded our contracted backlog to historic levels, and increased R&D investment and continue to evolve our technology and product roadmap. Let's review the key accomplishments in 2023, beginning with slide three. From a commercial perspective, 2023 continued momentum established in 2022, as long-term multiyear procurement continued to drive demand. We added 10 new customers, and secured 28.3 gigawatts of net bookings at a base ASP of over $0.30 per watt. Despite industry macro challenges such as global oversupply and pricing volatility, we continue to see strong mid to long-term demand, especially in the United States, as shown with 2.3 gigawatts of net bookings since the previous earnings call at an ASP of $0.318 per watt excluding adjusters or $0.334 per watt, assuming the realization of our technology adders. Our total contracted backlog now stands at 80.1 gigawatts, with orders stretching to the end of this decade. While Alex will provide a comprehensive overview of our 2023 financial results, our full-year EPS came in at $7.74, which is above the midpoint of our initial and Q3 2023 guidance ranges, and included the impact of the sale of our Section 45X tax credits and the impairment of our investment in CubicPV. These items, neither of which were included in our Q3 2023 guidance ranges, adversely impacted our full-year EPS by approximately $0.48 per watt. From a manufacturing perspective, we produced a record 12.1 gigawatts in 2023, representing a 33% increase in production over 2022. As a result, we have now surpassed 60 gigawatts of cumulative production since we first began commercial manufacturing in 2002. This growth was driven by manufacturing excellence at our Series 6 factories, which produced 9.7 gigawatts in 2023, an increase of 600 megawatts compared to 2022, and the successful ramping of our new Series 7 factories in the U.S. and India, which combined to produce more than 2.4 gigawatts in 2023. Our top production bin for Series 6 was 475 watts, and our top production bin for Series 7 was 545 watts. We remain committed to progressing our technology and product roadmap in 2023, having recently achieved a 22.6% world record CadTel research conversion efficiency based on our CuRe technology, and launched the first bifacial thin film solar panel. In addition, we successfully completed our manufacturing readiness trial under our CuRe program in the fourth quarter of 2023, and expect to begin manufacturing modules powered by this technology at our lead line in Perrysburg in the fourth quarter of 2024. It's vital that our supply chain and logistics operations keep pace with our manufacturing expansion plans, and we made meaningful progress on this front in 2023; key achievements, including entering into agreements with Vitro to supply American-made front and back glass for our manufacturing operations in the U.S. And with OMCO and Ice Industries to supply steel back rails for our facilities in Alabama and Louisiana. We also signed agreements with Saint-Gobain to supply the back glass for our modules in India. Regarding growth, we exited the year with 16.6 gigawatts of nameplate capacity. This marks an increase of 6.8 gigawatts from 2022 driven by the commencement of operations at our Series 6 factories in Ohio and India. In 2023, we announced a $1.1 billion investment in a new manufacturing facility in Louisiana, which is expected to add 3.5 gigawatts to our nameplate capacity in 2026. When combined with our Alabama facility and our Ohio manufacturing footprint expansions, both of which are in progress, we expect 2026 year-end nameplate capacity of approximately 14 gigawatts domestically, with another 11 gigawatts internationally for a global nameplate capacity of approximately 25 gigawatts. We also continue to invest in our technology with our R&D Innovation Center and a perovskite development line, both under construction in Ohio. These facilities are expected to commence operations in the first-half and second-half of 2024, respectively. Additionally, in 2023, we acquired Evolar, a European leader in perovskites technology, and as it transitioned its laboratory in Sweden to become our first R&D facility in Europe. These and other investments in R&D allow us to accelerate the cycles of innovation we believe are necessary to extend our leadership and thin film solar technology. Turning to slide four, as of year-end 2022, our contracted backlog totaled 61.4 gigawatts with an aggregate value of 17.7 billion or approximately $28.8 per watt. Through year-end 2023, we entered into an additional 28.3 gigawatts of contracts and an average ASP of $30.5 per watt. After accounting for sales of 11.4 gigawatts in 2023, we began 2024 with a total contracted backlog of 78.3 gigawatts with an aggregate value 23.3 billion or application $29.8 per watt. Since the end of 2023, we have entered into additional 1.8 gigawatts of contracts, resulting in a total backlog of 80.1 gigawatts. These most recent bookings have an average ASP of $31.9 per watt pre-adjuster, or $33.9 per watt if contract technology adjusters are realized. Additionally, we have received security against 206 megawatts of previously signed contracts in India, which now move these volumes from contracted subject to conditions precedent grouping within our future opportunities pipeline to our bookings backlog. A substantial portion of our overall backlog includes the opportunity to increase base ASPs through the application of adjusters. If we're able to realize achievements within our current technology roadmap as is expected timing for delivery of the product. As of the end of the fourth quarter we had approximately 39.1 gigawatts of contracted volume with these adjusters which if fully utilized, realized, excuse me, could result in additional revenue of approximately $0.5 billion or approximately $0.1 per watt. The majority of which would be realized between 2025 and 2027. This amount does not include potential adjustments, which are generally applicable to total contracted backlog, both related to the ultimate module bin delivered to the customer, which may adjust the ASP under the sales contract upward or downward, or for increases in sales rate or applicable aluminum or steel commodity price changes. I'll now turn the call over to Alex, who will discuss our Q4 and full-year 2023 results.

Mark Widmar:

All right. Thank you, Alex. A word about overall market conditions and the policy environment, as we enter 2024, while we continue to operate from a position of strength, leveraging our point of differentiation and strong contracted backlog, the continuation of Chinese subsidization and dumping practices has caused a significant collapse in cell and module pricing. Last month, Meyer Burger, a European module and cell manufacturer announced that deteriorating market conditions in Europe resulting from such practices as forcing them to prepare for shuttering module assembly in Germany, exemplifying the challenges to the EU stated goal of creating a self-sustaining renewable manufacturing industry. In India, sudden and significant reduction in cell pricing in the non-domestic content market segment has blunted the efficacy of the country's measures to address Chinese supply chain imports, distorting market pricing in the country and disincentivizing the ability of local suppliers to help achieve India's ambition to create broad domestic manufacturing to serve its domestic market. And here in the U. S., notwithstanding the U.S. Department of Commerce's general determination of antidumping and countervailing duty circumvention by four Southeast Asia countries, the continued record level of cell and module imports from these regions poses a threat to the current administration's ambitions of scaling and securing a robust onshore solar manufacturing base. In light of the current and forecasted state of oversupply in these markets and the resulting headwinds to the ability of domestic manufacturers to scale, we call upon governments and policymakers to either reinforce the measures already enacted or move expeditiously to take action. For instance, here in the U.S., we have long taken the position that the Section 201 Safeguard Bifacial Exemption simply opened the door for a multi gigawatt scale crystalline silicon product to have unfettered access to the American solar market, threatening U.S. Solar manufacturing. Indeed a recent report released by the U.S. International Trade Commission noted that a number of commenters cited the bifacial exclusion along with the 2022 executive order temporary blocking the U.S. Department of Commerce for imposing new tariffs on solar imports from Cambodia, Malaysia, Thailand and Vietnam as leading to increased availability of foreign made solar panels. We therefore advocate as the administration undergoes its current evaluation of the 201 tariffs that it closes this market distorting bifacial exemption which has been exploited to eviscerate the intent of these measures to safeguard the domestic industry. In addition with respect to the Uyghur Forced Labor Prevention Act, which address the scourge of utilizing forced labor within the solar supply chain. We similarly advocate for custom and border protection to utilize all of the tools in its toolbox to ensure a comprehensive enforcement strategy of law already on the books and to ensure that regardless of which port product is shipped into, the legal requirements in place are consistently enforced. In India, while the Approved List of Module Manufacturers or ALMM has been effective in incentivizing domestic manufacturing investment passes in the application of this law and the related impact to domestic pricing have put progress at risk. We are heartened that the ALMM waivers currently in place are expected to expire at the end of Q1 and would encourage the federal government of India to not grant such waivers in the future and to also consider expanding the ALMM equivalent requirements to cell manufacturing. These actions we believe will foster India's ambitions of reducing their dependency on the Chinese solar supply chain and in our view incentivize further capital investment in this country. Turning to the EU, while we are pleased with this month's recent development to establish the Net Zero Industry Act, which will prioritize permitting and funding for technologies deemed necessary to help the EU achieve its goal of making the region climate neutral by 2050 much work remains to be done. As we have continuously stated, investment in local manufacturing can only scale when sufficient measures are in place to ensure a long-term consistent level playing field. Such measures require addressing loopholes and trade policies that create the current situation where an oversupply of Chinese modules is being sold at artificially low prices as well as the harmful impacts of the use of forced labor. First Solar has demonstrated the benefits to domestic economies and communities of establishing local solar manufacturing. This is illustrated by an economic impact study commissioned by us and conducted by the University of Louisiana at Lafayette that was released yesterday. This study found that First Solar supported over 16,000 direct, indirect and induced jobs across the U.S. in 2023. This excludes an additional 5,800 construction related jobs tied to our capital investments in 2023. As we scale to an expected 14 gigawatts of annual nameplate capacity in the U.S., the analysis forecast that First Solar's operations alone will support approximately 30,000 direct, indirect and reduced jobs across the country by 2026, representing approximately $2.8 billion in annual labor income and $10 billion in total economic output to the 2026 U.S. economy. This study estimates that every First Solar job excluding construction supported six jobs in 2023 and this ratio is forecasted to increase to 7.3 jobs by 2026. We believe this data defines in tangible terms the value that domestic solar manufacturing delivers to the U.S. economy and should provide a basis for bipartisan political support to establish and maintain the policies and trade measures necessary to provide a domestic solar supply chain and a level playing field. We now turn to slide seven to examine our pipeline. Despite the current oversupply of Chinese modules and loopholes and trade policies in our key markets, our pipeline of potential bookings remain robust as reflected on slide seven. Total bookings opportunity stands at 66.5 gigawatts, an increase of approximately 600 megawatts since the previous quarter. Our mid to late stage opportunities decreased by approximately 500 megawatts to 32 gigawatts and includes 23.2 gigawatts in North America, 8.5 gigawatts in India and 0.3 gigawatts in the EU. Included within our mid to late stage pipeline are 3.8 gigawatts opportunities that have contracted subject to CP Presidents, which includes 1.1 gigawatts in India. Given the shorter timeframe between contracting and product delivery in India relative to other markets, we would not expect the same multiyear contracted commitments that we are currently seeing in the United States. As a reminder, signed contracts in India are not recognized as bookings until we have received full security against the offtake. Turning to slide eight, we are pleased with our progress of our Ohio capacity expansions and new Alabama manufacturing facility, which are expected to be completed and begin commercial shipments in the first and second halves of the year respectively. Once these projects are completed, we expect to exit 2024 with over 21 gigawatts of global nameplate capacity, approximately half of which is forecasted to be local in the U.S. Our new Louisiana facility is also on track and is expected to commence commercial operations in late 2025, bringing our expected total nameplate capacity to over 25 gigawatts by the end of 2026 with 14 gigawatts in the U.S. As a reflection of this expansion roadmap and continued optimization of the existing fleet, we have summarized our expected exit nameplate capacity in production for 2024 through 2026 on this slide. Our strategic expansion of manufacturing capacity in the U.S. which is supported by an extensive domestic value chain enables our customers' efforts to begin from to benefit from the ITC and production tax credit domestic content bonuses under the Inflation Reduction Act. The resulting demand for First Solar's American made solar technologies combined with the eligibility of our vertically integrated manufacturing facilities for Section 45X tax credits is expected to contribute significantly to our financial performance in the coming years. In addition to progressing our manufacturing expansion plans, we expect 2024 to be a foundational year from the point of view of accelerating our R&D efforts in pursuit of our goal to develop and commercialize the next generation of photovoltaics. As previously noted, in addition to a new perovskite development line, we expect to commission our Ohio R&D Innovation Center this year. Located near our existing Perrysburg manufacturing facility and covering an area of approximately 1.3 million square feet, it will feature a hi-tech pilot manufacturing line allowing for the production of full size prototypes of thin film and tandem PV modules. This center will allow us to create an R&D sandbox separate from our manufacturing operations, which we expect will accelerate without taking manufacturing mission critical tools offline which would impact throughput and cost. To close, as I mentioned at our recent Analyst Day, we established a goal to exit this decade stronger than we entered it. Reflecting on our progress, we ended 2023 in a stronger position than we began it, with a record contracted backlog, a significant pipeline of booking opportunities and continued robust demand in our core markets despite some of the current policy landscape challenges. We entered 2024 with new capacity of our most advantaged Series 7 product coming online, increased R&D investment and capabilities and continued momentum across the business driven by a focus on our points of differentiation and a balanced business model focused on growth, liquidity and profitability. I'll now turn the call over to Alex, who will discuss our 2024 outlook and guidance.

Operator:

Thank you, sir. [Operator Instructions] We'll take the first question from Moses Sutton, BNP Paribas.

Mark Widmar:

Yes, so, I'll take one, I guess. And in terms of -- as Alex included in his remarks, our plan is to be patient. The opportunities are there. You can see it, the pipeline of opportunities that we represent, both mid-to-late and obviously the early-stage pipeline. Separating U.S. from India, you're going to continue to see bookings in India, clearly. As we indicated, we've got a conversion that will happen of those contracted subject to CP. So, that's going to continue on a cadence that you would expect, call it hundreds of megawatts, maybe a gigawatt on any particular quarter to sell through that and to position for 2024. So, you'll see that momentum continuing. As it relates to the U.S., our strategy of being patient is largely how we're going to engage the market in conversations with our customers. I am very happy with the bookings that we showed up with this last quarter, great ASPs, good counterparties, technology adders associated with it. So, and feathered into a period of time that's very constructive for us, so a lot of that volume goes out into '27, '28, and '29, and touches '30 even. So, happy from that standpoint. We've got, right now, we got a short window between now and the next earnings call, so you could see maybe a period of softness there outside of the volume that we would expect to continue to recognize for India. But I've got ongoing commercial conversations right now for north of three gigawatts of bookings here for shipments into the U.S. that are in late-stage negotiations. And actually as this call was ongoing, I got a text that about 10% of that now has been booked, and will reflect in next earnings call. So, the momentum is there, it's available to us. It's how we choose to engage. And our strategy is to try to maintain the ASPs and delivering the certainty that we provide to our customers. There's a lot going on right now when you step back and reflect. There's a whole policy environment and the issues that have to be resolved, and uncertainty, and there's potential change in the administration in D.C., which Alex highlighted as well. And if there was a Republican administration, how would they choose to engage. And there's all kinds of conversations on how they'd think through IRA, sure. But I don't think that they would be any less lenient on the Chinese, and I think they could get more aggressive in the potential trade barriers that our customers are concerned about. And so, they value the certainty of First Solar, and looking to de-risk their projects as far out as they can go. The other thing that's still driving some uncertainty in the marketplace is, as you've seen recently with on an IP standpoint, especially as the market has transitioned to TopCon. Gencos has indicated that they're going to have a strong IP position for TopCon and they're going to enforce that IP. You've seen Maxeon make statements as well that they've got an IP position around TopCon that they're also going to enforce. And as you know, there is a significant transition towards TopCon. So, our customers also have to think through freedom to operate with their counterparties around intellectual properties. So, there is a lot that they have to think through, and there's a lot of uncertainty outside of engaging with First Solar. And so, we'll be disciplined and measured in our negotiations. But I would not at all be surprised that, as we finish out this year, we'll be somewhere around a 1:1 book to bill, which will add 16 gigawatts or so, that was our shipment profile. I wouldn't be surprised if our bookings is somewhat in that ZIP code. And largely, that would fill out our pocket of opportunity in 2027, so we could exit this year with a comparable backlog that we have right now, and potentially have a very solid position going into through to 2027, and continuing to think about how we book out through the end of the decade.

Philip Shen:

Hey, guys, thanks for taking my questions. First one's on pricing. Great job on the recent bookings ASP at $0.32 almost. And can you talk through the dynamics influencing that pricing? You mentioned a bunch of the earlier, Mark, but I'd love to get a feel for how the customer conversations have inflected. Last year, it was very much an oversupply price decline environment. And recently, a lot of this policy activity has kind of swung back in your favour as it relates to greater UFLPA enforcement or the potential to do one bifacial exemption being removed. Can you just talk through that customer conversation, and how that may have inflected recently? And then also, do you expect that pricing momentum to remain steady through '24 or is there even potential that it could go higher or do you think there is risk that it could go lower? The second here is around module volume, that you talked about there's a customer that can't take delivery of 381 megawatts of product. Are checks on this suggests there could be as much as 1.5 gigawatts floating around. And so, how many megawatts do you expect the market to transact in the secondary market, if you will, in '24? So, I know it's not your risk ultimately, but you do have to manage it at some level, and your customers, ultimately, have to deal with it. But -- and yes, you should have protections, but it's something that can be an issue to understand better as well. So, thanks, Mark.

Alex Bradley:

And so, you mentioned if what probably the pricing would stay steady, there's definitely some elasticity of demand related to pricing, which is why we want to be disciplined and why the position of strength that we put ourselves in is so important. We have no need to go out and chase deals. As I mentioned on the call, we could book nothing between now and the end of the year and still find ourselves two years forward sold out. If there is uncertainty in the market, we can afford to step back and therefore we can manage to some degree some of that price erosion. So, we'll continue to work with people that value the attributes that Mark brings, and therefore I think you'll see slower bookings, lower pace of bookings at pricing that we find accessible in the long-term. Clearly, if we wanted to sell a lot more and drop pricing, that would happen, but that's not the strategy.

Operator:

And everyone, that is all the time we have for questions today. This does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

Operator:

Hello. Good afternoon, everyone, and welcome to First Solar's Third Quarter 2023 Earnings Call. This call is being webcast live on the Investors section of 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. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Mark Widmar:

Thank you, Richard. Good afternoon, and thank you for joining us today. On our recent analyst day in September, we outlined our goal to exit this decade in a stronger position than we ever did. We believe the future belongs to thin film, and we described our long-term intent to be positioned to serve all addressable markets and commercialize the next generation of PV technology, balancing and optimizing across efficiency, energy and cost in an environmentally and socially responsible way. This long-term aspiration aligns with our nearer-term growth, which is underpinned by our points of differentiation and solid market fundamentals, including continued strong demand for our products, proven manufacturing excellence, a uniquely advantaged technology platform, and crucially, a balanced business model focused on delivering value to our customers and our shareholders. This is our last earnest call. We have continued to make steady progress on this journey, and I will share some key highlights related to continued strong demand and ASPs, manufacturing operational excellence, and expansion. Beginning on slide three, we will continue to build on our backlog with 6.8 gigawatts of net bookings since our last earnest call at an ASP of 30 cents per watt, excluding India. This base ASP excludes adjusters applicable to approximately 70 percent of these bookings, which when applied with our -- aligned with our technology roadmap, may provide potential upside to the base ASP. These bookings bring our year-to-date net bookings to 27.8 gigawatts and our total backlog to 81.8 gigawatts. Our total pipeline of future bookings opportunity stands at 65.9 gigawatts, including 32.5 gigawatts of mid- to late-stage opportunities. As it relates to manufacturing, we produce 2.5 gigawatts of Series 6 modules in the third quarter with an average watt per module of 469, a top end class of 475, and a manufacturing yield of 98 percent. Our third Ohio factory, which establishes the template for high-going Series 7 manufacturing, continues to ramp, demonstrating the manufacturing production capability of up to 15,000 modules per day, which is approximately 97 percent of nameplate throughput. The factory produced a total of 565 megawatts in Q3. Total year-to-date production of Series 7 modules in the U.S. has surpassed one gigawatt. As noted on our analyst day, the factory recently demonstrated a top module wattage produced of 550 watts as part of a limited production run. While still undergoing commercial qualification testing, this implies a record cattail production module efficiency of 19.7 percent. Our India plant started production in Q3 and is continuing to ramp, recently demonstrating a manufacturing production capability of approximately 12,000 modules per day, which is approximately 77 percent of nameplate throughput. The factory produced a total of 154 megawatts in Q3 and recently demonstrated a-top module wattage produced of 535 watts. In terms of technology, our Series 6 plus bifacial modules completed rigorous field and laboratory testing. We recently converted our first Series 6 plus plants in Perrysburg, Ohio, to commercially produce the world's first bifacial solar panel, utilizing an advanced thin film semiconductor. The technology features an innovative, transparent back contact pioneered by First Solar's research and development team, which in addition to enabling bifacial energy gain, allows infrared wavelengths of light to pass through rather than be absorbed as heat, and is expected to lower the operational temperature of the bifacial module and result in higher specific energy yield. Upon successful demonstration of operational metrics in high-value manufacturing, such as yield and throughput, we plan to convert more plants in the future, which will enable us to capture incremental ASV through our existing contractual adjusters. Turning to slide four, our focus on delivering value extends to our manufacturing expansion strategy, and we are making tangible progress towards achieving our forecasted 25 gigawatts of global nameplate capacity by 2026. Construction of our India facility is completed, and production has commenced. Commercial shipments are expected to begin once the factory receives the Bureau of India Standards certification, from the Indian government, which is expected by year-end. In September, we mobilized on our new Louisiana manufacturing facility, our fifth fully vertically integrated factory in the United States. At a ceremony attended by the governor of Louisiana, we set in motion the work expected to deliver 3.5 gigawatts of annual nameplate capacity, which is anticipated to commence operation at the end of 2025. When completed, we expect 1.1 billion facility is projected to take us to approximately 14 gigawatts of annual nameplate capacity in the United States, further enhancing our ability to serve the market with domestically made models. Meanwhile, we continue to make steady progress on the construction of our new Alabama facility, which is expected to commence operation in the second half of 2024, and our Ohio manufacturing expansion, which is projected to commence operation in the first half of 2024. Additionally, our new R&D Innovation Center and our first perovskite development line, announced at Analyst Day, are also on track, representing an expected combined investment of $450 million. The perovskite development line and R&D Center are expected to commence operation in the first half of 2024 and reflect our determination to lead the industry in developing the next generation of PV technologies, optimizing across efficiency, energy, and cost. Crucially, as our manufacturing footprint continues to grow, so does our supply chain. In the U.S., we recently expanded our agreement with Vitro Architectural Glass, which is investing in upgrading existing facilities in the United States to produce glass for our solar panels. The expanded capacity commitment from Vitro to FirstSolar is expected to commence production in the first quarter of 2026. Today, FirstSolar is one of the largest consumers of float glass in the United States. As PV manufacturing continues to scale in the U.S. and a premium is placed on domestically produced components, including glass, our early work to build a resilient domestic supply chain, which began in 2019, gives us a significant head start over the competition. Similarly, we expect Omco Solar to manufacture and supply Series 7 module back rails through a new facility in Alabama. This reflects our efforts to de-risk our supply chain with strategic localization. Omco only uses American-made steel, which aligns with our intent to maximize the domestic economic value created by our U.S. manufacturing footprint. Similarly, our high facility also served by a steel value chain that is located within a 100-mile radius of our factories. Before handing the call over to Alex, I would like to discuss our policy environment. In the United States, with regards to the Inflation Reduction Act, we continue to await guidance from the Department of Treasury on the Section 45X manufacturing tax credits. We also remain engaged with the administration and continue to work with our customers to ensure that the IRA's domestic content bonus guideline supports the Act's intent to sustainably grow U.S. solar manufacturing and its supply chains. As we have previously noted, we share our commitment to the current guidance with the administration and are working with our customers to enable their ability to benefit from the bonus credit for using U.S.-made content. We are appreciative of the work done by the Biden administration to provide a solid legislative foundation for domestic solar manufacturing. The IRA has supplied a catalyst for growth, and our goal is to leverage it to help create a position of strength for the country both now and after the term of the incentives. Beyond the IRA, we are also aware of new anti-dumping and counter-dating duty petitions filed against importers of aluminum extrusions from 15 countries. Consistent with our views on fair trade and the importance of conforming with rules governing trade issues, we will comply with any request for information from the United States Department of Commerce and the International Trade Commission while we work to understand the potential implications. Moving abroad, we remain engaged with policymakers across Europe as the bloc attempts to tackle serious challenges to its solar manufacturing ambitions. For example, Chinese modular inventory in Europe, stored in warehouses across the region and estimated by analysts to reach 100 gigawatts by the end of the year, is reportedly being sold at prices below its cost to manufacture. This alleged dumping behavior, driven by overcapacity in a Chinese silicon industry that has decimated international competition for the past decade, represents a serious threat to non-Chinese manufacturing and to ambitions of diversifying solar supply chains away from the dependency on China. It also represents a policy threat, potentially undermining the political willingness to deliver the comprehensive trade and industrial legislative solutions necessary to both level the playing field and incentivize domestic manufacturing. We continue to advocate for comprehensive legislation to safeguard any domestic manufacturing ambitions. Our view is that industrialistic manufacturing ambitions, our view is that industrial policy-related CapEx benefits alone are insufficient, and that absent sufficient trade policy support to ensure a level playing field, Europe will find it challenging to achieve what the U.S. and India have been able to do in a relatively short period of time. I'll now turn the call over to Alex, who will discuss our bookings, pipeline, and third-party results.

Operator:

[Operator Instructions] Your first question comes from the line of Philip Shen from Roth MKM. Please go ahead. Philip, your line is open.

Mark Widmar:

Yes. So from a branding standpoint, Bill, if you look at the bookings for this quarter, all the way out into 2029, so it's totally weighted in actually 2029. And so we're looking much further out in the horizon, which also kind of creates the dynamic of what is our base price and then what is the impact of the adders, which -- as we indicated, the $0.30, excluding India does not include the adders and 70% of the volume includes adders, and there a horizon that especially for the benefit of temperature-coefficient long-term degradation rate that we'll be in a much better position to capture those upsides. And as we indicated in the call, we're starting our initial buy-in production already in Ohio. And so when you look at the impact to the average ASP, and if you were to include the benefit of the adders to and marry that up and align it to our technology road map, as I indicated in my prepared remarks, you'd add about $0.02 or so to ASPs. So when you look -- when you make that adjustment, you compared to last quarter, you look at the period at which we're booking out into, but I would say the pricing is pretty stable quarter-to-quarter. And you're right. Last quarter, we had a relatively large deal that did not include sales rate. So there was a little bit of an impact to the average ASP because of that. But I would say, largely, it's pretty stable. We're very pleased with our ability to go further out into the horizon and still get very attractive pricing in the backdrop of a lot of changes in the very dynamic environment over the last 60, 90 days. As it relates to the comment about being discipline, we are going to continue to be disciplined. We are still supply constrained and we have a road map that will get us to 25 gigawatts. We're starting to see 27 fill up very nicely and starting to put more points on the board that go out 28, 29 and we touch 30 in some of the prior deals that we've done. If we come to the terms with customers on what makes sense for us, not just on ASP, but security, overall in terms of conditions, provisions to the extent they're applicable to domestic content, all that has to balance itself out into a deal that makes sense for us. And so look, that's how we're going to continue to engage them on market, and there's -- we'll see how the market reacts and especially the further events of the horizon, there will probably be some pause to some of our customers not willing to commit yet to that horizon, but we'll see how it plays out. But there's -- where they are now and maybe potentially decline slightly as we go across the next several quarters.

Alexander Vrabel:

Hey, guys. It's Alex on for Julian. Just a follow-up if I can to that, Mark. When you think about where you guys are booking, and I'll say this like you guys used to be in the development game as well. So I think you obviously understand the lead times on these projects. I mean, how much is that mid- to late-stage compression, a function of just listen, there's a lot of uncertainty as far as timing of interconnects, permitting, et cetera? And looking out in 2028, it's sort of hard to say which projects will be first versus second versus third. Or is this more that the market is kind of getting back to some level of normalcy as far as supply and demand in modules and buyers are just electing to it? I guess sort of parse that for us relative to it just being really long dated as opposed to a sort of a shift in buyer sentiment or market conditions, if you will?

Alexander Bradley:

Two things I might note. One is, at the Analyst Day, we talked around the fact that we actually over-allocate in the near term. And we do that deliberately because we tend to see projects move out to the right that gives us some comfort. The other reason we do that is a lot of our recent bookings have been framework agreements with customers, whereby they don't necessarily have a specific project allocating the modules they're buying from us. They just know they're going to need that total volume over a period of time. And those frameworks can be more challenging to plan for because there is often some flexibility in timing there. but also shows that customers and very long-dated bookings are willing to buy without necessarily loan exactly where the products go in because they value that certainty, and they know that over time, they'll find a home for it. So we've been seeing a lot more of behavior, which runs a little counter to your question, but we're seeing people looking out at times and they don't necessarily know exactly where it's going, but they're still willing to make that commitment because of the value I'm doing so. But as Mark said, the further we get out, the fact that we're now looking out into 2028, '29, it becomes part of people put meaningful deposits down and there's just less visibility on the framework side. That's why we talked about potentially seeing bookings slower.

Unidentified Analyst:

Hi, thanks for taking the question. This is Grace on for Brian. I guess -- my question on competition. So 1 of your crystalline computer recently announced a 5 gigawatts sale expansions. It's I think it's the first sign of whatever is the [ph]equation from China in the U.S, so the CapEx is lower, but can you speak to your understanding of the cost structure for overseas peer building in building?

Operator:

Your next question comes from the line of Joseph Osha from Guggenheim Partners. Please go ahead.

Mark Widmar:

So as we currently understand the supply chain and the availability of the domestically-sourced components that were identified under the IRA domestic content guidance that was provided. The only and really identifiable component that we believe -- I mean there could be some small stuff like adhesive and stuff like that, but that's not going to move the needle. But most likely, will really tell us a component that will move the needle, and that will drive some meaningful amount of domestic content will be the cell. If you look at this most recent announcement, I think that you said they'll be up and running by the end of '25, which means largely that those cells would be available for production and shipments and then eventually installation to or assembled in the models and then eventually installation on your project in '26. And I believe the requirements under IRA and '26 is close to -- I think -- so they have to -- so you're starting off at 40% domestic content and it steps its way up all the way to 55%. So they've got a window now that by the time they can actually realize the benefit of domestic content that requirements will be at a higher threshold than it is right now. At least the math that we run just looking at the cell and understanding the direct material, direct labor cost crystalline silicone at it will be very difficult for the cell-only domestically sourced module to meet the project level requirements to achieve the domestic content bonus. Series 7, as I indicated, which is the vast majority of our 14 gigawatts of the magnetic production is 100% domestically sourced. Therefore, it qualifies as a domestic product. it will be materially advantaged in enabling of domestic content bonus at the project level versus just a crystalline silicon module with a in domestically sourced sell.

Vikram Bagri:

Sorry about that. Good evening, everyone. I wanted to ask about capital allocation. At the Analyst Day, we understood that there is some downside to tech CapEx by implementing some processes at the supplier level. Any updates to share there? Also, Alex, you mentioned that repatriating cash, it sounds like, is not the most efficient path to fund CapEx in the U.S. So what the cost of repatriation is. And staying on the same topic, understand that funding buybacks with cash is not on the table yet. I was wondering if repatriating the cash longer term can fund for the buybacks longer term? And then finally, I was wondering if common equity is still off the table completely.

Alexander Bradley:

If you think about CapEx, we -- at the Analyst Day, we showed you a CapEx plan for '24, '25 and '26 in sales that was somewhere in the range of $3.5 billion to $4 billion of spend. As Mark just said, there's early indications that there's an opportunity potentially for some of the technology-related CapEx come down a little bit. However, you think about the near term, the majority of the spend for 2024 is not related to that capacity expansion, R&D facility enters maintenance and sustaining CapEx, so the guide that we've talked about in the Analyst Day of 1.6%, 1.9% for next year. It doesn't have a lot related to that technology a little bit. As you get into the out years, there's more technology related. So if there is an opportunity to bring that down, it's going to be more in back end of '25 and '26. So as we look through next year's capital standard program, still a significant CapEx program that we're looking at. And I think to have fun there, if you go back to the tax reform in 2017, what that effectively did was you paid a one-time transition tax, which is the equivalent of paying federal taxes to all repatriating the money. So the federal expense is basically done. However, there would be state local tax implications of bringing money back. So today, we're certain that we permanently reinvest our capital offshore. If we were to change that assertion and bring capital back, there wouldn't necessarily be a tax impact to the capital pullback as you would see and impact that depends on the P&L at the time to change that search. So I haven't given the number of what that would be, but there would be some potentially significant stable level tax indications of doing that at the time. In terms of thinking about the way the funding -- look, what we said right now is what we need is transition capital, temporary capital. I don't see any request. So what we're looking at is things that will help us bridge through the gap between the significant investments we're making now upfront and the timing of receipt of the cash associated with the action for credit. As I said at the Analyst Day, if we had that cash on hand at the same time that we recognize the tax benefit on the P&L, then we wouldn't have this potential challenge in jurisdictional mix and temporary transition timing. But the need for equity I don't see today. Then to your question around buybacks, look, we haven't looked at that. I think we're a long way from being in a position where we need to think about that. We're going into a pretty significant CapEx spend over the next few years. their capital not coming in yet. So we'll think about that when the time comes, but that's not where now we're going to invest inside.

Colin Rusch:

Thanks so much, guys. Can you talk about how much finished goods inventory you exited the quarter with and where you're at right now in terms of the nameplate run rate in India?

Colin Rusch:

Yes. That's the for the whole company and then understand where you're at in terms of the production run rate in India right now?

Operator:

Your next question comes from the line of Ben Kallo from Baird. Please go ahead.

Mark Widmar:

Look, Ben, I think we'll -- one of the deals that we just did this quarter I think there may be a press release this week. We added another 500 megawatts on to a deal with partner we have for a while. I think it brings a total of north of 3 gigawatts that we've done with this particular partner. And there's just this relationship and understanding of value propositions that First Solar is able to bring and our ability to deliver certainty against commitments that people look to and want to de-risk their projects. I mean that's their primary focus. These projects are meaningful multiyear investments with a meaningful amount of capital and that are starting to evolve now with higher CapEx dollars for our integration of storage and eventually integration of -- for hydrogen, that at the front end of what you need in order to make that project successful if something has to take bolt-ons that make electrode. Otherwise, nothing happens. And what our partners want from us is certainty. They want us to give them a competitive technology at a great price. That de-risk their projects and allows them a higher level of confidence of delivering against their commitments to their Board and to their shareholders and others. First Solar is able to do that, and we're uniquely positioned. We're also uniquely positioned to provide, we believe, with Series 7, in particular, the highest domestic content qualifying module in the industry to take risk to try to find ways to look at alternative paths so have degrees of uncertainty associated with that. It's not even clear that, that factory that you're referencing will actually be up and running in the time line of which it's been committed. The other thing is a portion of that off-take is going to be for self-consumption for their development arm, no different than the factory in Ohio, which as an equity investor that is looking to take a meaningful amount of that volume for their own development pipeline. That creates a different perception to some of our partners around why do I want to buy a technology or modules from the competitor, right? Somebody that's going to be competing with me, which our primary business model is to be a developer, finer business model is to be the IPP, the utility to own the generating assets to get the return on investment against the project to feed my competitor. To better position them to take market share from me is not in a position of strength that a lot of our partners choose to be in. And there's still uncertainty. I mean there's a lot of things that are changing. As it relates to -- I mentioned already, the potential duties supposed on true aluminum coming in from China and Southeast Asia. That's another risk profile that somebody has to be willing to expect they could be glass specs. I mean, who knows what the next step in the journey is going to be. And all our partners know is that with First Solar. They completely de-risk those dimensions, and they've got a great partner who's going to deliver a great product, great technology at a great price on top. So that's a sense of where our customers, I think, view us. And our contracts, yes, we have penalties and there's ways to potentially pay those penalties and customers potentially could break a contract and we'll take those penalties, and we'll get to sell that technology done into the marketplace to somebody else. But, when they step back and reflected the significant amount of risk that they would be taking for small nominal impact that is uncertain whether it's even a meaningful impact. It could even be a worse opposition for them, especially if they're jeopardizing the domestic content on your ITC. Why would you want to do all that brain damage for potentially roll as any benefit or make yourself -- put some in a worse position? As it relates to the factories and the start-ups, I mean the ROIC -- every one of these factories that we start up sooner just accelerates the ROIC, especially for U.S. manufacturing. That means we get dollars faster -- and so anything we can do to get product into the market faster just enhances the return on invested capital. And as we see that ability -- then as we think about alternatives for another factory, yes, we'll factor that in and say that our ability from announcement to high-volume manufacturing if it's a shorter time line than it potentially creates a lens that says that the payback obviously, could be more attractive for factoring.

Operator:

Our final question comes from Andrew Percoco from Morgan Stanley. Please go ahead.

Mark Widmar:

I think Alex actually referenced it in his section, but if you look at our bookings this last quarter, we highlighted three large contracts that were over a gigawatt at that total booking time. One of them is a return customer that we made an announcement on with Longwood Energy. I think we made that right around September, around the September time frame. But then we announced there was two other new customers. One is an IPP and another is effectively an asset management entity with a portfolio company and multiple developers both new customers. We're very happy with those in the first step of our journey of developing a deeper partnership with those counterparties. Look, they've come to First Solar for understanding of the unique value proposition and what we can provide. Unique value proposition and what we can provide. One of them, in particular, I know who's would have liked to have gotten on First Solar's books earlier. We just didn't have capacity. And so now when they look forward and they see there is some supplies you get out of '27, 28, '29. They want to secure some of that supply. They were lumped even on the books and '24, '25 and '26, in particular, we did it on supply. So yes, I do think that the environment that we're in right now and first solar capabilities to proposition, I think, are more compelling and is driving new customers into our portfolio and our overall contracted backlog, which is now north of 80 gigawatts. I mean just that can reflect on that number. I mean that's a huge multiyear contracted backlog and commitments with dozens of different partners that uniquely understand First Solar and understand the value proposition that we can trade that enable the success of our business model.

Operator:

Hello. Good afternoon, everyone, and welcome to First Solar's [First] (ph) Quarter 2023 Earnings Call. This call is being webcast live on the Investors section of 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. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Mark Widmar:

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, operational, and financial foundations, both in 2023 and in the coming years as we continue to grow. The second quarter 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. Moreover, continuing our commitment to sustainable long-term growth, earlier today, we announced that we will invest up to $1.1 billion in building a new, fully vertically-integrated manufacturing facility in the United States, our fifth in the country. Driven by compelling market fundamentals, supportive trade and industrial policies, and robust customer demand, as reflected in our year-to-date bookings, total contracted in 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 2026. And along with our Alabama facility, currently under construction, we'll produce our Series 7 module, which is expected to be a fully domestic product, and is determined by the current guidance issued by the U.S. Department of Treasury. This new investment puts us on track to grow our manufacturing footprint to approximately 14 gigawatts in the U.S. and 25 gigawatts globally by 2026, reaffirming the growth thesis we established in November of 2016. As noted on previous earnings call, the position we are in today is enabled by our point of differentiation. Our unique CadTel semiconductor technology, vertically-integrated manufacturing process, decision to locate manufacturing close to demand and develop robust local supply chains, and unwavering commitments to Responsible Solar, makes us a partner of choice for large sophisticated developers, both in the U.S. and internationally. As reflected by our continuing bookings progress since the previous earnings call, this differentiation continues to be a driver of long-term growth and competitiveness, placing us in a position to exit this decade in a stronger position than we entered it. Beginning on Slide 3, I will share some key highlights from the second quarter. We continue to build on our backlog with 8.9 gigawatts of net bookings since our last earnings call at ASP of $0.293 per watt, excluding adjusters where applicable. 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 would 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. As it relates to manufacturing, we produced 2.4 gigawatts of Series 6 modules in the second quarter, with an average watt per module of 468, a top bin class of 475 watts and a manufacturing yield of 98%. As noted in Q1 earnings call, our third Ohio factory, which establishes the template for high volume Series 7 manufacturing, 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. The factory has produced a total of 425 megawatts in Q2 for a total first half 2023 production of 595 megawatts. The factory recently demonstrated a top module wattage produced of 540 watts, which implies a record production efficiency of 19.3%. We sold 215 megawatts of Series 7 modules in q2, and are pleased to note that the product is already being deployed in three projects

Operator:

[Operator Instructions] Our first question comes from the line of Philip Shen. Philip, please go ahead.

Mark Widmar:

Yes. So I'll -- maybe I'll take the second one first, Phil. So, the reason we're able to still commit to some opportunities in '24 and '25 is really twofold. First is, and we highlighted in my prepared remarks, that we are using India in '24 and '25 for U.S. shipments. Demand in the U.S. was so strong, and we were restructuring some deals with customers that we could meet '24-'25 volume requirements and then pull through out of years as well where we had a little bit more supply. Those deals penciled out really well. So, we'll use some of the India line. We also have requirements under the incentive package that we received in India that there's some amount of exports that need to be achieved. And now there -- what we larger 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. The other is the ramp of our Perrysburg Series 7 factory is going very well, and that is creating some incremental capacity that's available in '24 in particular. And then we're looking to pull forward some of the Ohio upgrades that we were talking about before. Remember, 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. So all that is helping kind of create supply for '24-'25. The biggest [indiscernible], 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. market and they're attractive ASPs, and we're opportunistically using that volume to serve the U.S. market at this point in time. 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 rates 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. That is the impact of the volume that we booked that did not include sales rate. The momentum, look, I think there was a little bit of activity going on with maybe people trying to understand the domestic content requirements, that didn't slow us down on the conversion side. What I would say is that we had a very healthy quarter on conversions. As I indicated, we now have over $300 million 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 that the momentum should accelerate a little bit from the announcement of the new facility, the new factory. So I do think that will give us incremental supply that will better position maybe a little bit of acceleration. But as I look at the quarter, we excluded about 1 gigawatt of the Energix 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 been 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. I think that'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.

Mark Widmar:

The total backlog as of the end of the quarter which was about 70 gigawatts, that average ASP was $0.296. The bookings since the last earnings call, which was 8.9 gigawatts, was $0.293. 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 $0.30s. That -- those are the numbers.

Operator:

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

Mark Widmar:

Yes. On the domestic content rules, again, the way it's defined right now is that there are components that will determine if 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 of those components that have been identified will be manufactured in the U.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's no one else that will meet those requirements, whereas other manufacturers who made announcements in the U.S. will 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. We've been unique in our position there and been 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 is 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. 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 have preferred 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 the -- they qualify for the bonus to the extent of the modules' contribution. And they're still probably working through and understanding the tracker and the inverter in particular and how it all aggregates up with the project level. But I think everybody realized that Series 7, in particular, in First Solar, in general, is going to be meaningfully advantaged relative to anyone else manufactured in the U.S. today. As it relates to the factory timing, look, we haven't announced a site yet. And so, we're still working through the site selection. The timing of the site selection and 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, will 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 a 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.

Joseph Osha:

Hi, thank you, everybody. Two questions. First, I'm seeing perovskites and CIGS talked about. I'm wondering if we might get some sense as to when we might see those turning up in shipped products? And also whether -- if we're talking about tandem cells or higher-efficiency products, whether we might see those begin to show up in rooftop? And then, I do have one other question. Thank you.

Joseph Osha:

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

Joseph Osha:

Understood. Thank you.

Alex Vrabel:

Hey, guys. It's Alex Vrabel on for Julien. Just a question on the domestic content one more time. I mean you alluded there, Mark, to -- some of the sort of missing 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, 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 opportunity in the U.S., you guys have sort of historically been about a third of the U.S. 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.? And what that could become over time as we get into the latter half of the decade? Thanks.

Alex Vrabel:

Got it.

Vikram Bagri:

Hi, there. I was hoping that you could give a little bit more 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?

Vikram Bagri:

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

Operator:

Okay. Perfect. Thank you so much. And that is all of the questions we have time for today. We would like to thank everyone for taking the time to dial in today. You may now disconnect.

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 of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to hand the call over to Mr. Richard Romero from First Solar Investor Relations. Mr. Romero, you may begin.

Mark Widmar:

Thank you, Richard. Good afternoon, and thank you for joining us today. As we noted on our last earnings call, we entered 2023 and its initially stronger commercial and operational and financial position than the previous year, setting the stage for growth and improved profitability in 2023 and beyond. The first quarter of the year reflects this direction as we commission our latest factory in the United States. It started production of our next-generation Series 7 modules. Secured a manufacturing incentive award in India, progressed our technology road map with a new cell efficiency record and continued our strong bookings and ASP momentum. It’s important to emphasize that our point of differentiation from our unique CadTel technology and vertically-integrated manufacturing process to our commitment to responsible solar, continue to set First Solar apart from the competition and are the primary enablers of our long-term competitiveness. Beginning on Slide 3, I will share some key highlights from the first quarter. This quarter, we strategically built on our backlog with 4.8 gigawatts of net bookings since our last earnings call at an average ASP of $0.318 per watt, excluding adjusters were applicable. This brings our year-to-date net bookings to 12.1 gigawatts. While at the same time, our total pipeline for future bookings opportunities has grown to 113 gigawatts and includes 73 gigawatts of mid- to late-stage opportunities. From a Series 6 manufacturing perspective, we produced 2.36 gigawatts of product in the first quarter, with an average watt per module of 467, a top bin class of 475 watts and a manufacturing yield of 98%. This solid performance is the result of a relentless focus on manufacturing excellence. Regarding Series 7, the ramp at our third Ohio facility, which began production in January is progressing well. We produced 170 megawatts in the quarter and recently both demonstrated high-volume manufacturing production capability of up to 10,000 modules per day, which is approximately 60% of nameplate throughput and achieved a production top bin of 535 watts. Developed in close collaboration with EPCs, structured and component providers, Series 7 reflects First Solar's ethos of competitive differentiation. Responsibly manufactured in America, largely using domestically sourced components, including American made glass and steel, and entirely produced under one roof. It is optimized for the utility scale market and features a large form factor and an innovative new back rail mounting system. This design is expected to deliver improved efficiency, enhanced installation velocity and unmatched lifetime energy performance for utility scale projects. We are tracking to begin customer shipments as early as June of 2023, and towards that goal, we are pleased to have recently received Series 7 IEC and UL product certifications. From a technology perspective, in Q1, we certified a new world record CadTel cell with a conversion efficiency of 22.3%. Most importantly, this was achieved in our CuRe technology platform, which provides a significantly improved energy profile. In addition, we recently received an award from the U.S. Department of Energy related to our tandem module development. Moving to Slide 4. We are pleased with production progress at our manufacturing and R&D facilities expansions. In India at our new Series 7 factory in Chennai, final building and facility works are nearly complete, and the factory has been energized. Tool installation is ongoing, and we received our first incent to operate and expect to begin production and ramping activities during the second quarter -- second half, excuse me, of 2023. Once fully ramped, this facility is expected to add 3.54 gigawatts of annual nameplate manufacturing capacity to the fleet. As previously announced, the India facility has also been allocated financial incentives under the Indian government's production-linked incentive program. First Solar was 1 of only 3 manufacturers selected to receive the full range of incentives, which are reserved for a fully vertically-integrated manufacturing. The incentives are subject to the facility meeting product efficiency and domestic value creation thresholds, which we will evaluate on a quarterly basis beginning in the second quarter of 2026 through 2031. In Ohio, our project to upgrade and expand the annual throughput of our Series 6 factories by an aggregate of 0.70 gigawatts is also advancing. Tools have been ordered and the additional capacity is expected to come online in 2024. In Alabama, our fourth U.S. factory has received its environmental permits and foundation of early factory construction is underway. Tools have been ordered and the facility remains on schedule for completion by the end of 2024, with commercial operations ramping through 2025. When fully operational, these expansions in Ohio and Alabama are expected to increase our annual nameplate capacity in the U.S. to over 10 gigawatts by 2025. Our dedicated R&D facility has also commenced construction and will feature a high-tech pilot manufacturing line, allowing for the production of full-size prototypes of thin film and tandem PV modules, and we'll provide a means to optimize our technology road map with significantly less disruption to our commercial manufacturing lines. This facility is expected to commence operations in 2024. Looking forward, we continue to evaluate the opportunity for further investments in expanding our production capabilities to best serve our key markets. Moving to Slide 5. I would first like to draw your attention to a change in the way we present our contract backlog. In the past, we have shown expected module shipments. Going forward, we will show expected module volumes sold, which takes into account the timing of revenue recognition and aligned with volumes sold in contracts with customers for future sales disclosures represented in the 10-K and 10-Q quarterly fillings. As of December 31, 2022, our contracted backlog totaled 61.4 gigawatts, with an aggregate value of $17.7 billion. Through March 31, 2023, we entered into an additional 9.9 gigawatts of contracts and recognized 1.9 gigawatts of volume sold resulting in a total backlog of 69.4 gigawatts, with an aggregate value sold of $20.4 billion, which implies approximately $0.293 per watt, an increase of approximately $0.005 per watt from the end of the prior quarter. Since the end of the first quarter, we've entered into an additional 2.2 gigawatts of contracts bringing our total year-to-date backlog to a record 71.6 gigawatts. During the first quarter, certain amendments to existing contracts associated with commitments to provide U.S. manufactured product as well as commitments to supply domestically produced Series 7 modules in place of Series 6, increased our contracted revenue backlog by $35 million across 8.8 gigawatts or approximately $0.045 per watt. Since the second quarter of 2022 and up to the end of Q1 2023, cumulative amendments to existing contracts associated with commitments to provide U.S. manufactured product as well as commitments to supply Series 7 versus Series 6 modules, increased our contracted revenue backlog by $157 million across 4.1 gigawatts or approximately $0.039 per watt. Now we are currently processing additional amendments associated with providing U.S. manufactured product, which will be reflected in our Q2 contracted revenue backlog when reported. As we previously addressed, a substantial portion of our overall backlog includes the opportunity to increase the base ASP through our application of adjusters, we're able to realize achievements within our technology road map as of the required timing for delivery of the product. As of the end of the first quarter, we had approximately 34.5 gigawatts of contracted volume with these adjusters, which are fully utilized or realized could result in additional revenue of up to approximately $0.7 billion or approximately $0.02 per watt, the majority of which will be recognized between 2025 and 2027. As previously discussed, this amount does not include potential adjustments for the ultimate bin delivered to the customer, which may adjust ASP under the sales contract upward or downward. In addition, this amount also does not include potential adjustments for increases in sales rate or applicable aluminum or steel commodity price changes. Finally, this does not include potential price adjustments associated with the IT and domestic contract provision under the recently enacted Inflation Reduction Act. As a reminder, not all contracts include every adjuster described here. To the extent that such suggesters are not included in a contract, we believe that baseline ASP reflects in the appropriate risk-reward profile. And while there can be no assurance that we'll realize adjusters in those contracts when they are presented, to the extent that we are successful in doing so, we could expect a meaningful benefit to our current contracted backlog ASP. Our year-to-date contracted backlog extends into 2029. And excluding India, we are now sold out through 2026. Regarding future deliveries. As a reminder, our contracts are structured as firm purchase commitments. In limited circumstances, often related to customer regulatory requirements, or a portion of a large multiyear framework commitments, our contracts may include a termination for convenience provision, which generally requires substantial advanced notice to invoke and features a contractually required termination payment to us. This fee is generally set at a substantial percentage of the contract value and backed up by some form of security. Termination for convenience provisions apply to approximately 1/10 of our entire contracted backlog, with the majority of the applicable megawatts scheduled for deliveries between 2024 and 2025. Should the customer fail to perform under our contract, the ensuing default would in addition to their incurring potential dispute resolution and project financing complications, entitle us to remedies that could include the receipt of the termination that would include the receipt of termination payment. That said, we and our customers, including many of the largest, most respected developers and utilities in the industry, have long taken a relationship base versus transactional approach to contract. As a result, this year alone, we have booked multi-gigawatt deals with peak customers, including EDP renewables, Lightsource BP and Leeward Renewal Energy. We signed a 2-year 2-gigawatt order announced prior to the call, further expanding our long-standing relationship with us. And choosing the contract with First Solar, our customers value and prioritize initially more than just the module ASP, including contract integrity, product availability, uncertainty, ethical and transparent supply chain. For First Solar, this approach provides the opportunity to partner with customers who share our values and also provides greater offtake visibility, which helps support our long-term capacity expansion plans. There's a lot bit of interest, which has been validating the path through multiple pricing and supply demand cycles in this industry, informs and guides our commercial strategy of continuing to enter into long-term multiyear contracts. As reflected in Slide 6, our pipeline of potential bookings remain robust with total bookings opportunities of 112.7 gigawatts, and an increase of approximately 20 gigawatts since the previous call. Our mid- to late-stage opportunity increased by approximately 15 gigawatts to 72.6 gigawatts and includes 65.6 gigawatts in North America, 4 gigawatts in India, 2.7 gigawatts in the EU and 0.3 gigawatts across all other geographies. Included within our mid- to -late-stage pipelines are 4.7 gigawatts of opportunities that are contracts subject to conditions precedent, which included 1.9 gigawatts in India. As a reminder, signed contracts in India will not be recognized as bookings until we have received full security against the offtake. Turning to Slide 7. Our research and development efforts have continued to be the driving force in the enhancement of our technology. In Q1, we established a new world record Research conversion efficiency for CadTel, achieving 22.3% efficiency, as certified by the United States Department of Energy's National Renewable Energy Laboratory. The representing research cell was constructed at our California Technology set. Notably, this new record is based on our CuRe technology, which in addition to increase in efficiency as meaningful lifetime energy improvements in real-world conditions, driven by a superior temperature coefficient, best-in-class cell stability. While maintaining First Solar's industry-leading quality and reliability, our CuRe technology provides or an up to 6% increase in expected lifetime energy relative to our previous record cell technology. Additionally, the U.S. Department of Energy recently provided 2 grants associated with our industry-leading point of differentiation efforts. These include a $7.3 million award to First Solar to support the development of a CadTel tandem module for the residential rooftop segment and a $1.3 million award to the University of Kansas, which is collaborating with First Solar and the Idaho National Laboratory to develop a low-cost next-generation method to optimize solar module recycling. Before turning the call over to Alex, I would like to take a moment to discuss the policy environment in our key markets. In the United States, with respect to the Inflation Reduction Act, we continue to await guidance related to the domestic content bonus provision. We believe it is imperative that the United States Treasury Department issued guidance consistent with the congressional intent of the IRA, which is to nurture true domestic solar manufacturing, ensuring a robust domestic supply chain for American made solar modules. It is critical the guidance recognized that to qualify for the bonus. At a minimum, the manufacturing of solar cells must occur in the United States. This is not only consistent with clear objective of the IRA, but it's also supported by the legal framework under the Buy America Act Regulations expressly referenced by Congress in the Enacto. While the attend of the IRA and regulations governed and are clear, it is unfortunate that sections of the industry are advocating that treasury grant some form of waiver that would allow bonus credits for solar panels assembled using 4 subcomponents, such as solar cells. We believe that any such waiver runs contrary to the letter of the law and congressional intent. The purpose of the bonus credit is to incentivize domestic manufacturing and the creation of a domestic solar supply chain and not to create an entitlement simply to support foreign manufacturers. With regards to international policy, we are seeing some progress in the EU, which has released its new state aid guidelines in the form of the temporary prices and transition framework, and a draft that is net zero law. The stated guidelines create the framework for allowing EU member states under certain conditions to match aid received by clean energy technology manufacturers elsewhere, including under the IRA. The net zero law will establish new ambitions to meet regional needs with domestically produced content, prioritize net zero projects and technologies and address existing issues such as permitting. As previously mentioned, policy, among other considerations continues to influence our evaluation of potential additional manufacturing expansion. Such expansions would require further clarity including in the U.S., satisfactory treasury guidance with respect to domestic content and in Europe, further clarity on EU member states incentives for domestic manufacturing. I'll now turn the call over to Alex, who will discuss our Q1 results.

Operator:

[Operator Instructions] We will go to Philip Shen, ROTH MKM.

Mark Widmar:

Yes. I think from '26 and '27, I think we're something approaching combined those two, we're approaching close to 40% of that current supply plan being sold right now. But obviously, a little bit more of that is in '27 and '28, but I think we'll make good progress on both of those years. I don't really want to commit to a specific date when we would sell out '27 because we'll do '27 the same way that we did with '26. So customers who want '27 volume, we're going to want to tie that into multiple years. So we're going to leverage that as best we can across the balance of decade. So I don't think that's important not quickly we sell that, but it's how we use that '27 volume strategically to create more multiyear agreements and visibility as we go through the balance of the decade. As it relates to bookings, yes, I mean look, we had 60 days basically since the last earnings call, and so you would expect just from that reason always going to trend down. But the underlying demand, which is reflected in our total pipeline as well as our mid- to late-stage pipeline as we indicated in our prepared remarks, has continued to grow. So that's extremely encouraging. We have a number of very large deals with strategic counterparties that we're still working through. And we are successful in closing one or two of those. And in the second quarter, we could see a very strong result for the second quarter, plus if we can close more than a handful of those now through the balance of the year, I can continue to see bookings carrying forward into Q3 into Q4 being reasonably strong. But they indicated that we're longer dated in some of those commitments, so we'll have to see how it plays out. ASP-wise, I mean the great thing about having such a strong position where we are right now, is we can be patient and book deals that make sense. And there are certain counterparties that we've had ongoing conversation with where we just can't get to a point that is agreeable on price. So their expectation relative to where our expectation is that there's a gap. And so we'll continue to see if we can close those gaps. But if not, there's enough opportunity with other partners out there that we think we can continue to get strong ASPs. We have said, I want to make sure clear that as we do book the India volume, we've indicated before that India volume will have a lower ASP but still a very attractive gross margin on a cents per watt basis as well as on a percentage basis plus now that we also have the opportunity for the production-linked incentive, which will carry forward into making those opportunities more accretive if we're able to realize that benefit. So ASP trends will continue to work through them in a very patient manner for the U.S. We're pretty optimistic with where we are right now, and we'll continue to see how the balance of the year plays out. And also, as we indicated, we've more opportunity to look to capture technology adders. We also have the opportunity to capture the domestic content in Series 7 uplifts that are already embedded in our contracts. And I think the team did a great job in the first quarter here, realizing another $35 million of ASP uplift because of that. And as I indicated, we have a number of other deals that we're working through right now and close, which will then be capturing reported in our next quarter call.

Kashy Harrison:

So my question is around your capital allocation strategy. So if we look over the next 10 years or so, it looks like you're positioned to generate, call it, north of $10 billion from the manufacturing credits or pace of what you've been done so far. It seems like it would be pretty questionable political move to use that cash to return capital to shareholders, and there's only so much money you can spend on R&D each year. And so Mark, Alex, when you look at the business over the next decade, assuming treasury guidance comes in line with your expectation, is it a safe assumption that you're going to use that cash to expand manufacturing capacity? And if not, what are you going to do with all that cash?

Operator:

Next, you'll hear from Maheep Mandloi, Credit Suisse.

Alex Bradley:

Yes. So I think on the PLA, we're still working through how an accounting work. It's a return of capital of about 24%, I believe, against the facility cost that's going to take place over 5 to 6 years. And we'll update you on the accounting as we work through that. I'll leave Mark to talk about the expansion. But if I just look through where we are in terms of your question on production versus sold volume, I think this is something that confusion around some of the analyst reports potentially around timing. We -- from a production perspective, we will be growing production across the year, but it's not significantly backended in 2023. However, from a sold perspective, it is fairly back-ended. We guided to a midpoint of around 12 gigawatts of sold volume this year. We sold 1.9 in Q1. And the remarks just now we said that we're guiding to a first half of 4.3 to 4.5 to the midpoint of 4.4 for the first half of the year, and that leads you to 3.5 gigawatts in the second quarter and then leads to a second half number of about 7.6. So you can see this from a total volume were roughly 1/3, 2/3 weighted first half of the year, the second half of the year. If you think about why that is, it's a function partly of timing of customer demand when customers are requiring shipments. There's also a function of our Series 7 production beginning in Q1 continuing through Q2, but we're not beginning to ship that product until the back end of Q2. And so you're not going to see the timing of revenue recognition to that come into Q3 and Q4. So that's a lot what pushing that sold volume out. And then, of course, you see a similar dynamic in terms of the Inflation Reduction Act recognition, if you look at how that plays out, we said on the call, you're going to see something like quarter of the total revenue recognition from the benefit around the Inflation Reduction Act, Section 45X happening in the first half of the year, the remainder in the back half the year, and that's again a function of timing in U.S. sales from our Series 6. The fact that you've got some inventory lag carryover of Series 6 being sold that was produced in 2022, and therefore, doesn't have credit, and you've seen most of that the first and second quarter about 158 megawatts in Q1 and 50 in Q2. And then the Series 7, where, again, we're producing in the first half of the year, but we're not selling that product until the second half. So you could see the credit timing in the second half of the year as well.

Operator:

Next, we'll take a question from Brian Lee, Goldman Sachs.

Mark Widmar:

Yes. As it relates to the bookings and kind of the effect of the ASP sequentially. Actually, there's a pretty good mix when I look across call it, 5 gigawatts largely 4 deals that made up most of that volume 2, I think we announced, 1 was EDPR and the other was Leeward. And one of the things just to be clear on the Leeward is that. And you also noticed that we also have contracts subject to CP bucket in our disclosure, that gets about 4 points -- almost gave us 4.7 or something like that, of which 1.9 of that is India. Not all of that volume from Leeward was actually encountered or booking because there is a provision in there that we could flex it up or flex it down. And what we've done is we've taken a percentage of that volume and is reflected in the contract subject to CP. But I just want to make sure that's clear that not all the 2 gigawatts is actually in the bookings to that 4.8 because a portion of it is in the contract subject CP bucket. And again, it can flex up or flex down. But when I look at those bookings, the -- it's a good mix of international and domestic. It's a good mix of Series 6, U.S. and international. It's a good mix of Series 6 and Series 7. So it was not skewed towards one or the other. I will say that clearly, the ASPs that are represented in there for those different variants will be different. So -- and I said this before, the international volume is generally going to be lower than domestic volume because at the extent we're selling into the U.S. market because of the best content value equation of the domestic ITC bonus. There's also some amount of that volume that went into Europe, which was at a lower ASP. So when I look at it, it's relatively diversified. There's diversity of products, diversity of geography, that blended spill to a very strong result for the quarter, and we're obviously very happy with that. Now it's also lower volume than we've done in the last quarter. And generally, we see much higher volumes and larger agree purchasing power and a multiple-year agreement. You may see ASPs more aggressively into that situation. So I wouldn't attribute the increase to any 1 lever. But what I would say is that we're still very happy with the market and the opportunity and the ASP that we're receiving. As it relates to capacity expansion, look, the -- as we said, the primary engaging factor right now is clarity on policy. And I said it in my prepared remarks, if we -- if the domestic content stays true to the congressional intent of IRA and it truly requires a highly manufacturable component here in the U.S. in order to qualify and the bonus being truly a bonus and not trying to create some form of entitlement, which we believe that should include at least the cell, if not beyond the cell as part of the domestic content requirements to be manufactured here in the U.S. That's going to be a key determining factor in terms of new capacity. I've said before that if there's some reason that, that is not the decision, if it's module assembly only, then we've got to reassess in terms of how do we engage with best serving our primary market here in the U.S., and it may not necessarily be a new factory. It could potentially be a finishing line here in the U.S. because that's what the interpretation is by treasury DOE and White House, that's what they want. They want module assembly. They don't want module manufacturing. If that's their decision, then we'll have to assess that from our own perspective and determine what investments we make. But for me, first and foremost, has to start off with policy, and I'd be very disappointed if that's the direction that they went, I think we have a unique opportunity with IRA here to create an enduring supply chain allows cycles of innovations here in the U.S., allows the U.S. to be a technology leader with solar and other renewable energy. And let's help that's where the outcome is. If they choose to go a different direction and not being strategic in the long term in their thought process and the construct here, then we'll have to evaluate ourselves and determine what's the right deployment of capital.

Julien Dumoulin-Smith:

Just moving back to the comments in the prepared remarks about the termination for convenience. Just wanted to follow up. I think you guys said 1/10 of your entire contracted backlog has that with the majority being '24, '25? Can you comment a little bit about what kind of provisions or entitlements are provided for contracts beyond 2025 at present? Any kind of other nuances or other provisions beyond just the convenience piece?

Mark Widmar:

Yes. And then I think we also said is that in some cases, these are regulatory kind of requirements that we have to contract around. These provisions have been in our contracts, and again, on a relatively small percentage of our contracts. Historically, we have not seen customers in both these provisions to the extent they are in a contract. The other thing I would say is that some of these very same contracts that have these provisions were also out there negotiating with customers on domestic content uplift on ASPs. And when those uplifts do happen, there's additional security that has to be posted, which further in my mind, solidifies the commitment from the customer. Also most of our customers view this as a true partnership with First Solar. And they know that if they were to invoke something like that, they would be making a decision to no longer be willing to partner with First Solar. I don't think there's many of our customers today that really want to be that vulnerable given the uncertainty, which could happen at any point in time, right, between geopolitical issues and challenges between the U.S. and China and other implications that could happen that could have an adverse impact on supply chain in the U.S. It's going to be a while before you get a fully vertically integrated U.S. supply chain that would include poly through module assembly. Our customers understand that's what First Solar brings to the equation and they bring certainty and integrity. And I think that will keep most of our partners committed to the long-term relationships and not looking at transactional opportunities.

Benjamin Kallo:

Maybe following on to that first question. Just capacity, Mark, how do you think about it because I think the overcapacity is going to become a bigger worry, at least from our standpoint in Wall Street just because we've seen it before the new announcements. And then my second question is about carbon intensity in your technology and how that benefits you. Specifically, I think I read that creating hydrogen, clean hydrogen will require to get those credits will require solar panels that have this low carbon intensity. So maybe there's a differentiation there.

Operator:

And our final question today will come from Colin Rusch, Oppenheimer & Company.

Mark Widmar:

Yes. Supply chain expansion, I think, Colin, you referenced glass in particular but at the end of the day, the module is two sheet of glass and back rail or frame of some type, which has a little bit more steel. Glass is critical. And it's [indiscernible] we're in. We recently -- there was a joint announcement with us and beat around a factory that they're going to now start up to serve our glass needs, the factory that was idle in Pennsylvania, which will now start up and provide cover glass to us. And so one of the things that we're doing is we're really diversifying our supply chain from a glass standpoint, which is really important for us. We're also in some conversations with them to provide and with other parties of coated glass, substrate glass. So we're trying to really broaden our reach and engagement. What's also nice about this as some of those parties -- counterparties that we're working with on the glass, in particular, are looking at solar as a strategic market that they want to be a part of, and we've got a great opportunity to leverage that with them to enable their strategic intent coupled with ours. So I'm more optimistic you would ask me 6, 9 months ago, where we were, I would say, I'm more optimistic now with some of the work the team has done to enable that supply chain from a glass standpoint in particular. Size of the projects generally are larger. We're not really seeing in many of the projects in kind of that 40 to 60 megawatts. I mean most of the projects that we're targeting with our customers are all in the 100 megawatts and generally getting larger and as you start to get into the hydrogen space, which we're starting to see some opportunities down that path. I mean those are 300, 400, 500-megawatt type of projects, in which we'll continue to grow at least as that evolves more and it goes beyond just a smaller opportunities at the full-scale hydrogen projects that are product finance and what have you, those are going to be large projects, and that's why the reason why I think that demand inflection point on hydrogen probably hasn't been fully appreciated with most people's forecasts.

Operator:

Good afternoon, everyone, and welcome to First Solar's Fourth Quarter and Full Year 2022 Earnings Call. This call is being webcast live on the investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Mark Widmar:

Thank you, Richard. Good afternoon, and thank you for joining us today. We began 2022 with the expectation that it would be challenging from an earnings perspective as we face unprecedented logistics and commodity costs. But we also expected it to be a year of transition, setting the stage for growth and profitability into 2023 and beyond. We entered this year in a significantly stronger commercial, operational and financial position with increased R&D investment, new domestic and international capacity coming online and a new Series 7 product. We also began the year with a record contracted backlog, a significant pipeline of bookings opportunity and a robust demand in our core markets. This momentum is driven by our points of differentiation, including a unique CadTel technology, vertically integrated manufacturing process, domestic production, strong balance sheet and commitment to responsible solar, placing us in a position to respond to emerging opportunities, particularly those enabled by the rapidly evolving policy environment. This momentum is also due to the hard work, commitment and passion of our associates. Beginning on Slide 3, I will highlight some of our key 2022 accomplishments. From a commercial perspective, in 2022, we saw a precipitous shift towards long-term, multiyear module procurement. This record volume of multi-gigawatt deals spanning multiple years was driven by a combination of competitive pricing, competitive technology, agile contracting, shared values and trust in our ability to deliver the certainty that our customers are looking for. As a result, we had an excellent year from a bookings perspective, securing a record 48.3 gigawatts of net bookings in 2022. This was an increase of 30.8 gigawatts from our prior annual record of 17.5 gigawatts set in 2021. Our total backlog of future deliveries as of today's earnings call now stands at a record 67.7 gigawatts. Financially, while Alex will provide a more comprehensive overview of our 2022 financial results, our full year EPS results came in towards the high end of the guidance range we provided at the time of our third quarter earnings call. We ended the year with a gross cash of $2.6 billion, or $2.4 billion net of debt, which is an increase to gross and net cash of $800 million versus the prior year. This puts us in a position of strength to expand our capacity, invest in research and development and technology improvements and pursue our strategic opportunities. From a manufacturing perspective, we produced a record 9.1 gigawatts in 2022. Additionally, at the start of 2023, we achieved a significant milestone, producing our 50th gigawatts since commercial production began in 2002. Average watts per module produced in 2022 increased to 462 watts, an increase of 14 watts, and we increased our top production bin from 465 watts in 2021 to 475 watts in 2022. We exited 2022 with 9.8 gigawatts of nameplate manufacturing capacity and, last month, commenced initial production at our next-generation Series 7 factory in Ohio, which will continue to ramp through 2023. We are also on track to complete the construction and commence the ramp of our Series 7 factory in India during 2023. Furthering our manufacturing expansion program, in 2022, we announced a new 3.5-gigawatt Series 7 factory in Alabama and a 0.9-gigawatt increase to nameplate capacity at our Ohio factories. By 2026, we expect U.S. nameplate capacity of approximately 10.7 gigawatts and global nameplate capacity of approximately 21.4 gigawatts. We also announced in 2022 an additional investment and a dedicated $270 million research and development facility to be located near our existing Perrysburg manufacturing plant in Ohio. We expect that this investment will improve cycles of learning and innovation and reduce downtime on our commercial production lines, while allowing us to produce full-sized prototypes of both thin film and tandem PV modules. Strategically, we were able to largely exit our legacy systems business in 2022, which enables us to focus on our greatest technology and competitive advantages. Alex will discuss potential remaining legacy costs and opportunities related to this business when he provides guidance later in the call. Looking forward, we continue to evaluate the opportunities for further investments in incremental manufacturing capacity, including both greenfield expansion and throughput optimization at our currently planned capacity. This evaluation will require, among other things, an understanding of the anticipated IRS and treasury IRA guidelines, including the respect to domestic content as well as confidence in the presence of robust supply chain that supports our expansion objectives. Therefore, no expansion decisions have been made at this time. Turning to Slide 4. I'll next discuss our most recent shipments and bookings in greater detail. We shipped approximately 2.3 gigawatts and 9.3 gigawatts for the fourth quarter and full year 2022, respectively, which was within the guidance range that we provided during the third quarter earnings call. As a reminder, we generally define shipments as when the delivery process to a customer commences, whereas revenue recognition, or volumes sold, occurs at a transfer of control of the modules to the customer, which is commonly upon arrival at destination port or project site. With regards to bookings, we have sustained our recent momentum with 12 gigawatts of net bookings since the third quarter earnings call at an average base ASP of $0.308 per watt. As previously noted, we are seeing a perceptible shift in procurement behavior as evidenced by the volume of multiyear, multi-gigawatt orders placed by our customers. Since the beginning of 2022, large developers such as Intersect Power, Lightsource BP, National Grid, Origis Energy, Savion, Silicon Ranch and Swift Current, among others, have placed orders for at least 2 gigawatts. The fact that many of these transactions are with repeat buyers is an indication of the trust and shared values that underpin our customer relations. And it is a clear differentiator from the most more transactional approach taken by many of our competitors. After accounting for shipments of approximately 2.3 gigawatts during the fourth quarter, our future expected shipments, which now extend into 2029, are 67.7 gigawatts. Excluding India, and including our year-to-date bookings, we are sold out through 2025. We have, in recent months, pivoted from negotiating solely for 2026 volume to work with customers who are looking to secure multiyear contracts over the remainder of the decade. As a result of this commercial shift, we have not, as previously expected, as of the third quarter earnings call, fully sold out of our non-India production in 2026. We have sold more volume than previously expected for deliveries in 2027 and beyond. In total, we now have 25.5 gigawatts of planned deliveries in 2026 and beyond, an increase of 12.3 gigawatts from our prior earnings call. I'll now turn the call over to Alex, who will discuss our Q4 and full year 2022 results.

Mark Widmar:

All right. Thank you, Alex. Looking forward to 2023, we are pleased to enter the year with solid fundamentals, including a record backlog of orders and a manufacturing capacity growth plan that is well underway. We are on track to add 6.2 gigawatts of global nameplate manufacturing capacity this year as our new Series 7 factories come online in the U.S. and India. We expect to exit 2023 with 16 gigawatts of annual nameplate capacity. We also expect 2023 to be a pivotal year as we build on the foundations established in 2022 to scale manufacturing, invest in R&D and evolve our technology and product road maps. In addition, we expect to begin benefiting from the advanced manufacturing production tax credits provided for under Section 45X of the Inflation Reduction Act. We await IRS and Treasury guidance that we expect will reflect the statute’s language and intend to incentivize the domestic production of modules and the related components. Given our fully integrated thin film manufacturing process, we expect that this guidance will entitle us to integrated tax credits for wafers, cells and module assembly, which we estimate will equal approximately $0.17 per watt for modules produced in the United States and sold to a third-party. Finally, we expect to host an Analyst Day event at our manufacturing facility in Ohio later this year, on a date to be announced, to deliver an overview of our technology, product and manufacturing road maps as well as to highlight our newest Ohio factory. Turning to Slide 7. As previously noted, our new Series 7 factories remain on schedule. The U.S. factory commenced initial production in January of 2023 and will continue to ramp over the remainder of 2023. Our India factory is forecast to begin production in the second half of 2023 and ramp into 2024. Once fully ramped, these factories are expected to lead the fleet in terms of module wattage and efficiency and regionally on a cost-per-watt basis. Based on our current technology road map, we see the potential for meaningful improvement in our module performance, with a mid-term goal of achieving a 570-watt monofacial Series 7 module. As we significantly increase our nameplate capacity, we believe this anticipated growth, when balanced with liquidity and profitability will drive earnings accretion as contribution margin expansion is leveraged against a largely fixed operating expense structure. As a reflection of this expansion road map and continued optimization of the existing fleet, we have summarized our expected exit nameplate capacity in production for 2023 to 2026 on this slide. Turning to Slide 8. Our total bookings opportunities of 93.1 gigawatts remain robust with 58 gigawatts in mid to late-stage customer engagement. When combined with our current record backlog of 67.7 gigawatts, we believe we are well-positioned for growth with a solid foundation of demand visibility. As it relates to converting the pipeline into future bookings, our record bookings in 2022 were driven by the favorable balance of near to mid-term available supply, aligned with customer demand for large volume multi-year procurement. The time line into which we are now selling is longer-dated than historic U.S. sales cycles. As a consequence, this could result in year-on-year reduction in bookings volume as we look to sell long-term forecasted supply in 2026 and beyond. Our commercial strategy remains largely focused on supporting long-term multi-year customers who prioritize price and product availability certainty as well as ethical and transparent supply chains. Furthermore, this demand environment supports the rationale of evaluating future capacity growth, subject to the aforementioned considerations related to expansion, including those related to IRA domestic content guidance and the assessment of our supply chain. Before turning the call back to Alex, I would like to take a brief moment to touch on the global policy environment. Broadly speaking, 2022 placed us on the cusp of significant growth in domestic solar manufacturing within our core markets. As policymakers here in the United States and leading democracies abroad demonstrates, they are serious about tackling the unhealthy overconcentration of solar supply chains in China and the vulnerabilities that come with it. In fact, 2022 saw industrial policy designed to spur investment and create jobs at scale. The year saw a tangible progress in the U.S. with the passage of the Inflation Reduction Act in India with the production-linked incentive program and movement towards spurring domestic manufacturing within the European Union with the introduction of the Green Deal industrial plan. Furthermore, we’ve also seen a significant uptick in legislation focused on tackling the issue of forced labor with the passage of the Uyghur Forced Labor Prevention Act in the United States and similar laws and initiatives, either implemented or under consideration, in Europe, the United Kingdom Australia and Japan. These significant recent and ongoing policy developments demonstrate that governments around the world are supportive of solar technologies that can be scaled in a sustainable manner for both people and the planet. I’ll now turn the call back over to Alex, who will discuss our financial outlook and provide 2023 guidance.

Operator:

Thank you. [Operator Instructions] And now we’ll take a question from Philip Shen of ROTH.

Mark Widmar:

All right. On the bookings side, so we -- since our last earnings call, we booked 12 gigawatts, okay? Since year-end, we booked 7.3 gigawatts. If you look at our disclosure that’s in the K, I think Alex referenced it as well, our contracted backlog revenue is a little less than $18 billion as of the end of the year, it’s like $17.7 billion. The implied ASP on that is like $0.288. And if you do the math, the walk from the prior quarter, I mean, you’ll get something around $0.31, I believe. If you’d look, there’s a lot of rounding and stuff that’s going on in there. What we did say is that on the 12 gigawatts that we booked since the last earnings call, the ASP on that was $0.308. If I look at the ASP for what we booked in the first quarter this year so far, right, through the earnings call here today, that ASP is higher than that $0.308. So the average ASP that we booked for the $0.073 is higher than the five that we booked since the other portion of the total booking since the last earnings call. So ASPs are pretty – in a pretty solid position. I guess the other way I look at it is just from the Q3, 10Q to the 10K at the year end. I think we added about eight tenths of a cent or something to the average ASP. So you saw it, I think it was like $0.28 or something like that the prior quarter. Now it's like $0.288. And we're seeing a lot more bookings now, obviously higher than that. And if you were to include the bookings that we have for January and February, I think the – you add about $2.3 billion of revenue or something like that in the average ASP on that contracted backlog, I think goes to be slightly above $0.29. So we're very happy with what we're seeing from an ASP standpoint and obviously the trajectory. And remember, we're booking a lot more volume than is not just in 2026, which is what we said we were targeting from the last earnings call we were going to be booking into 2027 and 2028. We now have 47 gigawatts or so of 27 – 24 gigawatts I think or so of volumes that go out into 2026, 2027 and 2028. It's about 45% of our capacity excluding India. So we're booking relatively far out all the way up through 2029, and we're getting, good ASPs with which, so we're pretty pleased with that. Momentum wise, Phil, I guess the challenges continue to be is finding customers that want to contract that far out in the horizon. And one of the things that we're trying to do instead of just sell each discrete year out, we're trying to sell out multiple years, right? So we're not just selling 2026, we're trying to bring in 2026, but bring in your 2027, 2028 or even 2029 volume into the discussions with the customer. So, we will see how that goes. I mean, the pipeline clearly says the momentum's there and there's opportunities we've got more than enough pipeline of opportunities that we could close on. So we're happy with that momentum. But again, it's changing kind of the normal cadence and the dynamics of bookings and in particularly in the U.S. most people wouldn't go out multiple years. But we are seeing a lot of customers that are willing to do that. And not only just out three or four years, but in some cases out five or six years. Domestic content, Alex may have a more precise number than I do. I know, we ended up booking a little bit of incremental volume from the last earnings call. It wasn't a significant amount of the few 100 megawatts. But the ASP uplift that we're getting there is still in that range of around $0.03 to $0.04. So we are seeing good momentum there. And we're out aggressively talking 2024 and 2025 right now with customers to get incremental ASP uplift for domestic production that we would provide our customers. So that's an ongoing activity from that standpoint. And Alex may have the actual gigawatts from a revenue standpoint.

Operator:

And our next question will come from Brian Lee of Goldman Sachs.

Mark Widmar:

Yes, so Brian, on the deposits, we typically take somewhere up to 20% in deposit. We don’t necessarily take all of that in cash, but we do ask some cash. We’re also depending on the credit worthiness of the counterparty and the size of the deal, willing to take some of that in other liquid security healthy surety bond, potentially impairing guarantees. If it gets to be very large deals and multi-year deals, and that number would get very large. We sometimes take security and then roll that through the deal. So it continues to stay with us until we get towards the end of that deal. If you look on the balance sheet as of year end, you’re going to see something, a region of $1.2 billion of customer deposits in terms of future bookings on the balance sheet side of today. And we would expect that to rise as we go through the year. There will be some of that recognized as revenue. So it’ll come off being deferred revenue, but given the bookings trajectory and the timing of deposits placed from some of the deals that we’ve already signed in the last year, we would expect that number to rise through the year.

Operator:

Thank you. [Operator Instructions] And now we will go to Colin Rusch of Oppenheimer.

Mark Widmar:

Yes. So the forecast is about 2 billion of CapEx through this year on the construction asset side of the plant. You're going to see that on a fairly regular cadence through the year for Alabama. On the U.S. and India side, you're going to see the remaining CapEx spend on those plants be towards the front end of the year. There's some more R&D CapEx occurring at the back end of the year, so you're going to see that be relatively even across the year on a blended basis, but from different areas. In terms of the unwind we don't expect to see significant amounts of the current deferred revenue actually recognized this year. There's about 1.2 on the balance sheet today. I think it's going to be something recent. 100 million to 200 million of that will roll off this year and be recognized as revenue, so not a meaningful number added to that current deposit base. As I said, we expect to add material amounts to that this year. The significant portion of that is from deferred deposits for deals that have already been signed and therefore, it's simply a question of the timing of that posting. There is a piece that relates to future bookings and our assumptions, and that will depend a little bit on the timing of bookings, the total volume of bookings for this year. But the majority of our expectation is for deals that have already signed and that we'll get deposits just based on the time schedule already agreed.

Unidentified Analyst:

Hey guys, it's Alex [indiscernible] for Julien. Just one quick one. You mentioned some caution at this point about announcing further expansions, I'm just curious if you can elaborate what sort of guidance or indications you're looking for in order to think about expansion? And then would you think about possibly doing something in the U.S. as far as a produced basis to sell into other markets, thinking places like Europe specifically, if you were to announce additional expansions at this point? Thanks.

Operator:

And now we'll take a question from Maheep Mandloi of Credit Suisse.

Alex Bradley:

Yes. So the main reason there is if you look at cash flow generated across the business, we sell today the vast majority of our products into the U.S., both from our U.S. facilities and our Malaysia and Vietnam facilities. However, the way that our profitability works is we transfer price, the significant amount of the profitability associated with production of the international modules back to the international locations, and we also send cash back as well. If you look at our CapEx for the year, about three quarters of the forecast CapEx for the year is going to be in the U.S. And so what we expect to see over the year is that as our cash profile comes down, we're starting the year at about $2.4 billion of net cash, we have, about a forecast, $2 billion CapEx program. You look at the year-end cash, the guide takes us $1.2 billion to $1.5 billion, that implies about $1 billion of cash. What we're going to see is we're going to have our U.S. cash balance come down more than our international cash balance. So what a revolver does is it gives us flexibility in terms of being able to manage jurisdictional mix of cash. In terms of timing, we're not in a rush to do this. We've got plenty of liquidity in the U.S. today. So it's something we're looking at right now, but not something we're rushing into. In terms of other capital, as we mentioned on the call, if you look at our current forecast spend profile, our current forecast, manufacturing expansion and R&D profile, we can finance everything that we have in front of us without the need to go out and raise additional capital. That said, if we were to add incremental capacity, something that we continue to look at, or if we were to find other opportunities in the R&D space, we may need to raise capital at that point. So something we're continuing to look at. And as Mark mentioned in his prepared remarks, we intend to hold an Analyst Day later this year. We'll give a more update there around our liquidity and capital plans.

Joseph Osha:

Hi, thanks. Further to the conversation we're just having, if you think about the manufacturing credit and the fact that it looks to me, based on your cash guide, like you're going to book a lot of it this year, but probably not monetize it until next year, I'm curious, on a go-forward basis, could we see that work a little better because this enforces the first year, so you're booking it but not actually receiving. And I'm also curious, Alex, if you thought about any ways to making the future monetize that credit more frequently, say, on a quarterly basis or something like that? Thank you.

Operator:

And with that, everyone that does conclude today's question-and-answer session and today's call. We'd like to thank everyone for your participation, and you may now disconnect.

Operator:

Good afternoon, everyone, and welcome to First Solar's Third Quarter 2022 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Mark Widmar:

Thank you, Richard. Good afternoon, and thank you for joining us today. Earlier this afternoon, we announced net sales of $629 million and a net loss per diluted share of $0.46 for the third quarter of 2022. As noted in our original guidance for the year, 2022 was projected to be challenging from an earnings standpoint, but we continue to maintain an unwavering focus on the future, setting the stage for long-term growth and profitability. Beginning on Slide 3. Our strong bookings momentum has continued into the second half of the year, with 16.6 gigawatts of new bookings since our last earnings call, which have a base ASP of $0.316 per watt before the application of potential adjusters and total year-to-date bookings of 43.7 gigawatts. Our total backlog of future deliveries now stands at a record 58.1 gigawatts and includes orders for delivery as far into the future as 2027. The continued long-term demand for our products and the fact that our technology is expected to serve as the backbone for many of our customers' long-term growth plans is a testament to First Solar's strong fundamentals, grounding our commitment to the principles of responsible solar, our differentiated technology platform, our balanced approach to growth, liquidity and profitability, and our ability to provide a U.S. technology and manufactured product. In the third quarter, our manufacturing facilities produced 2.4 gigawatts of modules, and we shipped 2.8 gigawatts. Although showing signs of the recent easing, the overall shipping and logistics environment remains challenging. Alex will later discuss the impact of this on our Q3 results and full year guidance. Manufacturing performance metrics remain consistent across our existing fleet, and construction of our third manufacturing facility in Ohio and our first manufacturing facility in India remains on schedule. During the quarter, we announced 4.4 gigawatts of additional U.S. manufacturing capacity. And today, we announced an additional investment into a dedicated R&D research facility to be located here in the U.S., near our existing manufacturing facility in Perrysburg, Ohio. Finally, as it relates to our legacy systems business, we have completed the previously disclosed sale of our operations and maintenance platform in Australia and Japan. And this week, we signed a sale and purchase agreement for our Luz del Norte project in Chile. Turning to Slide 4. With regards to our manufacturing capacity and as announced in August, we are investing approximately $1.2 billion in scaling our U.S. manufacturing footprint. Driven by robust demand for our module technology as well as U.S. manufactured product, we expect this will expand our domestic nameplate capacity to approximately 10.7 gigawatts in 2026, up to approximately $200 million will be spent to upgrade and expand our Ohio manufacturing footprint at both our current operating facilities as well as our third factory, which is currently under construction and scheduled to come online in the first half of 2023. As a result of this expansion, we believe our Ohio nameplate capacity will increase by almost 1 gigawatt to just over 7 gigawatts by 2025. Approximately $1 billion will be invested to build a new factory, our fourth in the United States, representing an additional 3.5 gigawatts of Series 7 nameplate capacity. This facility is expected to commence operation in 2025. We continue to evaluate several possible sites across the Southeast and expect to announce the location in the coming weeks. Beyond this, we continue to evaluate the opportunity for further investments in incremental manufacturing capacity, including throughput optimization of our current planned capacity. In addition, we are evaluating capital investments to support the advancement of our R&D initiatives. In the United States, the enhancement -- the enactment of the Inflation Reduction Act with both supply side manufacturing and production tax incentives as well as demand drivers, including the expansion of investment and production tax credits for solar and clean hydrogen provides a long-term clarity necessary to support investments in manufacturing. In India, we continue to see a supportive policy environment given the decisive decisions by the government to diversify and grow domestic capabilities to avoid deeper dependencies on an unreliable, volatile and high-risk supply chain. In Europe, we continue to work with stakeholders to advocate for long-term manufacturing and supply chain strategies that would enable us to support the energy needs of Americas allies with local manufacturing, responsibly produced solar technology. We recently joined other leaders in the European Union to provide high -- to highlight the PV supply chain, the need for decisive actions from the EU if it wishes to deliver on its goal to scale manufacturing across the block by 2025. while our immediate focus on scaling our announced factories in the U.S. and India, we remain committed to exploring the long-term potential for further geographical diversification, contingent upon a supportive local policy and demand environment. With regard to research and development, today's announcement of an approximately $270 million investment will support a 1.3 million square foot dedicated R&D innovation center in Perrysburg, Ohio, which pending final approval of various state, regional and local incentives is expected to be completed in 2024. Currently, our R&D programs require transferring potential product advancements developed on specialized product development lines located in our California and Perrysburg laboratories to high-volume manufacturing conditions by running engineering test authorizations or ETAs, on our existing commercial production lines in Ohio. Using these production lines increases operational complexity as well as limit cycles of learning in addition, the combination of a larger form factor module, increased module throughput and a recently enhanced production-based policy incentives has significantly increased the opportunity cost of the downtime required to run ETAs on existing high-volume manufacturing lines. This new facility will feature a pilot manufacturing line allowing for the production of full-size prototypes of both thin film and tandem PV modules. Creating a sandbox separate from commercial manufacturing operations is expected to reduce operational complexity, reduce costs allow us to accelerate our rate of learnings, solidify our leadership in current and next-generation technologies. Turning to Slide 5. As previously mentioned, we booked 16.6 gigawatts since the July earnings call, bringing our year-to-date bookings to 43.7 gigawatts. With respect to future shipments, after accounting for shipments in the quarter of 2.8 gigawatts, which was in line with our expectations, our total contracted year-to-date backlog is 58.1 gigawatts. Note, while we have contracted volume for India, we have not recognized this volume in our backlog. Excluding our new India manufacturing facility, we are sold out for 2024 as of the July earnings call. As of now, we are sold out for 2025 and close to selling out for 2026. Note, we anticipate having '26 sold out by the end of the year as we have a number of contracts in late-stage negotiations. As we transact further into the future, we are pleased with the pricing trajectory of our technology. The 16.6 gigawatts of bookings since our prior earnings call in July have a base ASP, excluding adjusters where applicable of $0.316. Note, approximately 40% of this volume is reflected in the Q3 backlog number in the 10-Q. During the third quarter, certain amendments to existing contracts associated with commitments to provide U.S. manufacturing products as well as commitments to supply Series 7 versus Series 6 modules increased our contracted revenue backlog by $52 million across 1.4 gigawatts or approximately $0.037 per watt. As of Q3, the average portfolio based ASP reflected in the revenue from contracted footnote in the 10-Q increased approximately $0.012 versus the second quarter end. As we previously addressed, a substantial portion of the overall backlog includes the opportunity to increase the base ASP through applications of adjusters if we're able to achieve certain achievements within our technology road map. As of the end of the third quarter, we have approximately 31.4 gigawatts of contracted volume with these adjusters, which, if realized, could result in additional revenue of up to approximately $0.7 billion or approximately $0.02 per watt, the majority of which will be recognized between 2024 and 2026. As previously discussed, this amount does not include potential adjustments for the ultimate module being delivered to the customer, which may adjust the ASP under the sales contract upwards or downwards. In addition, this amount does not include potential adjustment for increases in sales rate or applicable aluminum or steel commodity price changes. Finally, this does not include potential price adjustments associated with the ITC domestic content provision under the recently enacted Inflation Reduction Act. As a reminder, not every contract includes every adjuster described here. To the extent that such adjusters are not included in a contract, we believe the baseline ASP reflects an appropriate risk/reward profile. And while there can be no assurances that we will realize adjusters in those contracts where they are present, to the extent we are successful in doing so, we would expect a meaningful benefit to our current contracted backlog ASP. Our recent bookings, which include large headline numbers ranging from 0.7 to 2 gigawatts, including a number of significant transactions with existing customers, such as AREVA, Silicon Ranch and Swift Current Energy in the United States. The same is true where Azure Power, who has worked with First Solar for over a decade signed an agreement for 600 megawatts as the first customer to contract for offtake from our new facility in Chennai. Note, as mentioned during our prior earnings call in July, signed contracts in India will not be recognized as bookings until we have received full security against the offtake. As such, deals signed but not fully secured, included in this agreement with Azure Power will be reflected within the confirmed but not book portion of our pipeline graph in the earnings presentation. As reflected on Slide 6, our pipeline of potential bookings remain robust. Even at year-to-date bookings of 43.7 gigawatts, we retain total booking opportunities of 114 gigawatts. Our 71 gigawatts of mid- to late-stage opportunities include 62.5 gigawatts in North America, 4 gigawatts in India and 3.3 gigawatts in the EU. Even with our 16.6 gigawatts of bookings since our prior earnings call, our pipeline of mid- to late-stage opportunities has expanded by 52.8 gigawatts since the prior quarter. In addition to previously noted demand drivers, including customers' need for certainty around technology, supplier integrity and our ability to stay behind our contracts and deliver on our commitments, demand has been further catalyzed by the enactment of the Inflation Reduction Act. For many customers, this legislation has provided visibility into supportive long-term policy environment to the extension of the solar investment tax credit, the introduction of the production tax credit for solar and similar incentives with respect to green hydrogen. As a consequence, we are seeing increased demand from both existing and potential new customers and included in our pipeline are several opportunities with multiyear, multi-gigawatt volumes. Turning to technology. We continue to make steady progress with our current road map as we worked on the operational and market readiness of our next-generation Series 7 modules. Our new Ohio facility, which will be the first in our fleet to produce this product, is on track to commission in the first half of 2023. Early test runs of the semiconductor deposition equipment performed as anticipated with full-size Series 7 samples delivering efficiency equivalent to the current modules [ph]. The Series 7 module has been developed in close collaboration with EPCs, structure and component providers, and the product has benefited from working over the past year with our partners, including Array Technologies and NEXTracker to develop mounting solutions. Their work, along with the support of our customers' EPC partners, is expected to help ensure the product ecosystem is ready and optimized for install costs once Series 7 enters the market. Additionally, we have continued to make progress advancing our CadTel bifacial modules based on our Series 6 platform and expect to launch a pilot production scale run before the end of this year and a small-scale infill deployment with a strategic customer as early as the first quarter of next year. I'll now turn the call over to Alex, who will discuss our Q3 2022 results.

Mark Widmar:

All right. Thank you, Alex. I would like to discuss the U.S. policy environment, which has evolved significantly over the past quarter. As you may recall, the joint announcement from Senators Manchin and Schumer regarding the Inflation Reduction Act preceded in our last earnings call by just 1 day. Since then, we have seen the Act signed into law and First Solar had the privilege to be part of the White House event in September, celebrating the groundbreaking piece of legislation. . In our view, by passing and enacting the Inflation Reduction Act of 2022, Congress and the Biden-Harris administration has entrusted our industry with responsibility of enabling and securing America's clean energy future, and we recognize the need to meet the moment in a manner that is both timely and sustainable. Thanks to our strong foundation, including a repeatable, vertically integrated manufacturing template, proven technology platform and solid balance sheet, we were able to respond rapidly to enact -- to act by accelerating the decision to expand our U.S. manufacturing base. Our confidence in committing to a 1.5 billion expansion in American manufacturing and R&D was backed by a healthy order book, a robust pipeline of opportunities and approximately 2 decades of experience in scaling U.S. solar capacity. However, we still have a substantial journey ahead as the relevant U.S. government agencies work to implement the Act, providing interpretive guidance and alignment on process and administration. Specifically, we wait Department of Treasury guidance that will apply to what we believe is a legislation's intent to incentivize vertically integrated U.S. manufacturing under the Section 45X provision, allowing our thin film manufacturing process to access the entire integrated tax credit. Similarly, we also anticipate guidance on the domestic content bonus that project owners may seek under the new production tax credit and the extended investment tax credit for solar. Given our unique manufacturing process, which transforms raw materials into a finished module under 1 roof, we expect that our product will qualify as U.S. domestic content and help enable the bonus incentive. As a crucial first step towards delivering clarity the IRS has solicited comments from interested stakeholders that will then shape the guidance provided around aspects such as the administration and value of tax credits under the 45X provision. Moreover, while we understand the urgent need for clarity, we encourage a healthy degree of patience as the details are normalized. The effectiveness of this landmark climate legislation hinges on the thoroughness of this administrative process and resulting guidance. We strongly support the thorough, thoughtful approach being pursued by the Department of Treasury and IRS. As America's largest solar manufacturer, we remain actively engaged with the U.S. government and intend to respond to the public request for comment and provide input as an interested stakeholder to aid the guidance process. Internationally, we observed a strong growing focus from governments and democratic nations towards addressing the use of forced labor in the supply chain. In addition to the President said in U.S. we enforce Labor Protection Act, Australia, Canada and the United Kingdom have introduced measures to tackle the issue of businesses profiting from human rights abuses, particularly in China's Xingqiang region. More recently, the European Union released a draft law that could come into effect by 2025, which would ban the import of products linked to the use of forced labor regardless of where they are made. These actions point to the growing compliance risks of continuing to rely on Chinese crystalline silicon and the increasing urgency with which solar industries and democratic nations need to find sustainable solutions in response to the significant threat. Meanwhile, our responsible solar standard has not simply emerged as a key competitive differentiator has also been driving factors behind our industry-leading ESG ratings. We are proud that earlier this week, First Solar made its debut in Investor's Business Daily 100 Best ESG companies of 2022, ranking 6 across all included corporations and first among energy companies. Being the only solar manufacturer included in this list of leading companies that makes profitability with ethical and social responsibility is a testament to our commitment to responsible solar and attribute to the sense of purpose with which thousands of our employees around the world make the most of each day. With that, I conclude our summary on policy deployment. Alex will now summarize the key messages from today's call.

Operator:

[Operator Instructions] We'll take our first question from Kashy Harrison at Piper Sandler.

Mark Widmar:

All right. I'll take the first one, and then I'll let Alex do the finance and then how we expect to recognize the credits in the P&L. So our contracts have and we've been doing this for an extended period of time now in corporate provisions that relate to domestic content to the extent there was any legislation that would be passed that would differentiate domestic content value for incremental ITC or even out with the PTC. So we've incorporated those matters. What I’ll say from my prepared remarks is one of the things that we highlighted is that, we recognized as part of our backlog that has already been contracted as of the end of last quarter for about 1.4 gigawatts, we have modified those contracts, which would include value now for domestic manufacturing and it was $52 million against that 1.4. And in my prepared remarks, I indicated it was about $0.037. So there’s a significant uplift what’s been contracted so far is we’d be recognizing across ‘23 and ‘24, but we have a lot more volume that we have to go out and contract. But I think it’s an encouraging first step to have 1.4 now contracted at a pretty nice increase to our baseline ASP.

Operator:

We'll move next to Philip Shen at ROTH Capital Partners.

Mark Widmar:

All right, Phil, I'll take the first 2 and I'll let Alex take the last one. First off, Phil, as you can see what we announced in our presentation deck that if you look at our total pipeline of opportunities and then you look at our mid to late-stage opportunities, as I said in my prepared remarks, the 114 gigawatts of total opportunities and mid- to late stage is around 70 gigawatts, which both of those are record highs for us and meaningful opportunities for us to continue to see strong bookings momentum. I think this is the fourth quarter in a row that I think we've had double-digit bookings. So if you go back and if you look, starting with end of last year, Q4 of last year, we've had 4 quarters now with double-digit bookings. And this quarter here, at 16.6 [ph] is now an all-time record. When I look at near term, and I indicated, we'll sell through 2026 by the end of the year. And when -- and I also indicated we have a number of multi-gigawatt multiyear opportunities that are still in our pipeline. And we are seeing customers that are wanting to commit through the end of this decade. And we indicated in the prepared remarks, most of the bookings that we've seen right now are through 2027. And so now we're seeing longer-dated opportunities and again, multi gigawatts, which would be a historic record high individual bookings transactions that for us as a company. And I think where we sat before, our highest bookings we did before, I think it was somewhere in the range of about 5.4, 5.5, something like that with an individual counterparty. We've got multiple opportunities that would be significantly higher than that if we were able to close on those. And so I don't see the momentum changing at this point in time. And we will continue to book as long as we see strong ASPs, as we indicated in this last quarter, the bookings were $0.316 before adders. And if we can continue to see very strong ASPs going further out into the future, they have a very balanced risk/reward profile then we'll continue to do that. It also will continue to inform as we see that activity, and we'll continue to inform our views around additional factory expansions. We indicated our most recent expansion, which would come online in 2025. And there's still a window to impact the second half of this decade with more factories here in the U.S. And so as we see stronger demand, that will inform our views around incremental capacity expansions. Phil, your next question -- as it relates to the FEMA requirement and the Category 4, we're very well of what's going on there. What I would say is that if there is a Category 4 requirement for the power plant, it is not uniquely defined at an individual component level. Our products with our contracts are to deliver against a specification and the specification is defined in those agreements. To the extent that there is a decision made that ultimately individual components would need to be modified to enable a power plant to meet a certain criteria, a different category than what exists today then that would be a modification to the contract because the specification requirements for the product would change. So that is something that could evolve and we'll address that to the extent that it does. The other thing that I would say, I don't believe that the changes in order to hit the requirement of a Category 4 would necessarily be achieved by modifying or changing the module. I think more of it will come from the structure than it will come from the module. And there are certain things potentially you could do with the module as it relates to changing the frame or potentially the acryls or modify the thickness of the glass. All that is going to do is add weight to the product, which also creates challenges around install. These modules with the labor 2-men or 3-men lift, there are some limitations around weight. So I don’t know if your optimal solution will be modifying the module, I think it could be more or less a modification to the structure that could handle the incremental requirements in our Category 4

Operator:

We'll take our next question from Colin Rusch at Oppenheimer & Company.

Mark Widmar:

Yes. So Colin, I think you're talking about our multi-junction product that we've announced our development around, which we also referred to as Tandem. Look, as it relates to the technology, we've made significant advancements in that regard in terms of the capabilities and improving and delivering high-efficiency products along the lines of the road map that we've envisioned so far. And ultimately, we'd love to get to a point where we're sitting at 24%, 25% type of efficiency at the module level. The biggest issue that we still have around -- I think we made good progress in the lab. The real question is ultimately, how do we commercialize and when do we come to market. And one of the challenges that we've had in that regard is finding the right silicon supply chain, one that meets the criteria that are aligned with our approach around responsible solar. So, I think the technology is evolving quickly. The real question is, how quickly can we bring it to market? And how quickly can we get confidence in that supply chain that we would have to be dependent upon for the bottom sell, which at least the current vision is top cell thin-film CadTel, bottom cell crystalline silicon. Over time, we could look to evolve that to a thin-fin film construct, but that would be further out into the horizon. As it relates to pricing, again, what we said in the prepared remarks was that we are just in the process of realizing domestic content value that has been embedded in our base contracts. So we’ve contracted 1.4 gigawatts. If you look at ‘23, ‘24 and ‘25, we have just on a capacity -- nameplate capacity perspective, we’ve got north of 20 gigawatts of volume that will be available on a nameplate capacity will be slightly lower than that when you think about actually realization of capacity given the overall ramp of the new factories. But there’s a lot of volume still to go through. We’re happy to see the uplift, which is right now a little bit -- it’s about $0.37 or so of value. So we did 1.4 gigawatts and $52 million of ASP value creation. So a lot of opportunities still go after the balance [ph]. We're just still in the early innings, and we’ll continue to provide updates as we progress.

Julien Dumoulin-Smith:

Congratulations team again. Well done, I got to say. I just wanted to follow up on a couple of pieces. You talked about capital allocation on brief. Can you talk about just expansion, right? You alluded to Europe as being an opportunity. Clearly, they have their own mandates or preliminary mandates in ‘25. Can you talk about that? Also, I’ll note that the European bookings opportunity is a little bit modest…

Operator:

We'll go next to Brian Lee at Goldman Sachs.

Mark Widmar:

Yes. So in terms of base ASPs and opportunities, yes, we clearly are seeing an opportunity there as it relates to what was already contracted as of our last quarterly filing and as of the end of June. As indicated, we have provisions in our contracts. And in some cases, even if provisions are not in our contract, customers are reaching out to us and asking for an opportunity to get U.S. supply, which will enable their value creation on domestic content. And then we have a discussion with them. And appropriately adjust -- amend the contracts or the incremental ASP value, we think, is appropriate for dedicating that that allocation to a particular customer. So that's momentum, and we'll continue to see how it progresses. Like I said, we're in very early innings, but we've got a lot of opportunity to continue to pursue. As it relates to U.S. capacity versus Malaysia, Vietnam, as of now, as we see the horizon sold through 2026 by the end of this year, I see all that volume in Malaysia, India -- excuse me, Malaysia, Vietnam has been committed and sold as part of that overall volume. And we are distinguishing ASPs in a meaningful way for that volume and nowhere near -- it will be substantiated by the difference in the relative cost structure between Malaysia and the U.S. on a landed cost basis. So we are seeing some of that, but it's not -- so far it has not been material. And we'll continue to evaluate it as we move forward to ensure that we can sell through that capacity. And if we find that it's difficult to sell it into the U.S., we'll look to sell and support other markets internationally, such as EU from our Malaysia, Vietnam facilities over time. Look, we know that new capacity is going to come into the market. We believe we're an advantaged established player. We've got a unique initiated technology. We're the partner of choice with a number of key customers here in the U.S. We also firmly believe that CapEx is going to be higher to bring production into the U.S. and the cost is going to be higher to manufacture here in the U.S. Our Series 7 product is a low-cost product relative to Series 6 relative to Series 6 in Ohio, but also relative and competitive with our international factories for Series 6. So we believe we've got a differentiated technology, a low-cost technology. And we also believe that competition to put manufacturing here in the U.S., whether it's at the module level, the cell level or down to the wafer level, that will be a higher cost of product that we still believe we can differentiate ourselves and maintain attractive ASPs even if that were to happen.

Maheep Mandloi:

Maybe just one question on the contracted backlog. Can you talk about how many of contracts at manufacturing PTC or the domestic content ITC pass-through build-in? And so trying to think how much of that 0.18 [ph] per watt flows through the bottom line? And how much could we expect to be shared with the end customers? And separately, I just wanted to understand more on the R&D line investment. What could we expect over there? It seems like it's like a 1 gigawatt spare capacity, but I just want to understand what new upgrades or changes and mix like that.

Mark Widmar:

As it relates to the R&D line, look, as I indicated, it's a 1.3 million square foot facility. We envision that, that line will probably start as it relates to ETAs. We may not run it 24/7. We may run it 5 days a week kind of thing, may not run again 24 hours. We're probably going to be doing something in the range of 1,000, maybe 1,200 plates a day for engineering tests. So it has capacity. Obviously, you can do much more than that but it's more or less as needed given the development requirements that we have for various programs, both on our thin film as well as our multi-junction tandem and we'll utilize it as well over time to even think about next-generation technology, whether it's perovskites or some other thin films that could evolve over time. So we're excited about having the R&D line. It decouples us from being constrained by our manufacturing capacity. It's going to improve our cycles of learning, and we really believe it will accelerate our technology road map and time to market.

Keith Stanley:

Just one clarifying question on Slide 4. The year-end nameplate capacity it looks higher for the new Series 7 plants than the slide you showed earlier in the year for Ohio and India. What's driving that? Are they a little ahead of schedule or anything else going on?

Operator:

And we'll take our final question today from Joseph Osha at Guggenheim Partners.

Alex Bradley:

Yes. So on the cash timing, it's something that's going to come, I think, with more clarity when we get IRS treasury guidance. Typically, at the end of the year, we would file a tax return, 6 to 9 months after the year-end, and then there will be some time after that for us to receive cash. We're still -- it's still not clear exactly what process that will go through. So we're awaiting guidance to understand that more.

Operator:

And that does conclude today's question-and-answer session and today's conference call. We thank you for your participation. You may now disconnect.

Operator:

Good afternoon, everyone, and welcome to First Solar's Second Quarter 2022 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. At this time, all participants are in listen-only mode. As a reminder, today’s call is being recorded. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Mark Widmar:

Thank you, Richard. Good afternoon and thank you for joining us today. To begin, we are pleased with our second quarter results, including earnings per share of $0.52. This result was benefited by the previously announced closing of the sale of our project development platform in Japan, partially offset by an impairment of the legacy systems business project in Chile, which will be discussed later during the call. We've also continued our booking momentum, further strengthening our backlog of future expected deliveries, which now stands at a record 44.3 gigawatts. The 10.4 gigawatts of new bookings since our prior earnings call in April are mostly for deliveries in 2024 to 2026 time frame and have a base ASP, excluding adjustors of $0.301. These new deals bring our total year-to-date bookings to 27.1 gigawatts. From an ASP perspective, we are encouraged by the pricing trajectory of our bookings as we continue to transact for deliveries as far out as 2026. On an overall portfolio basis, the profile of our annual base contracted ASPs remain effectively flat from 2022 through 2025 with the potential to grow with the application of technology, sales trade and commodity price adjustors applicable to many of these bookings. Firstly, as it relates to technology adjustors, if we are able to realize the achievements within our technology road map, the ASP has potentially increased to reflect the value associated with the enhanced product and energy profile. As of June 30th, we had approximately 20.5 gigawatts of contracted volume with these adjustors, which, if realized, could result in additional revenue of up to approximately $0.4 billion or approximately $0.02 per watt, the majority of which will be recognized in 2024 and 2025. As previously discussed, this amount does not include potential adjustments for the ultimate module bin delivery to the customer, which may adjust the ASP under the sales contract upwards or downwards or for those contracts in the United States that include sharing related to potential upside for U.S. main modules under the extension of the investment tax credit. Secondly, the ASP may increase to offset incremental costs as it relates to sales freight. Thirdly, the ASP has also potentially increased to offset incremental costs as it relates to aluminum. With regards to our Series 7 product to be produced at our new factories in Ohio and India, featuring a glass area of approximately 14% larger than our Series 6 Plus modules and utilizing the steel as opposed to aluminum frame, we have also begun to introduce adjustors to offset potential increased steel costs. As a reminder, not every recent contract includes every adjustor described here. To the extent that such adjustors are not included in the recent booked contract, we believe the baseline ASP reflects an appropriate risk reward profile. For example, some of these contracts have delivery terms where the customer is responsible for the cost of sales freight from the factory gate. In summary, we continue to leverage our value proposition of providing our customer and partners with long-term supply certainty, lower political and compliance risk and access to our best available technology. These critical points of differentiation, together with our differentiated CadTel technology, have allowed us to continue to expand our record backlog and an overall pricing that we believe is both, encouraging and competitive and with appropriate risk mitigation. Turning to slide 3. I'd like to review our highlights and some updates from our second quarter. Our manufacturing facilities produced 2.2 gigawatts of modules in Q2. The result was benefited by higher throughput due to faster-than-expected upgrades of certain equipment at our Vietnam manufacturing facilities. As previously disclosed, we have completed the sale of our project development platform in Japan. As we seek to divest our remaining power plant assets, we are evaluating potential buyers for our Luz del Norte project in Chile. Alex will discuss the timing and financial impact of this potential transaction. Construction of our third manufacturing facility in Ohio and our first manufacturing facility in India remains on schedule. To date, we have seen increased -- increases associated with steel and freight costs. Looking forward, as we continue to explore further manufacturing expansion opportunities, inflationary pressures on building equipment and freight costs are expected to remain a concern. Finally, we've entered into a $500 million debt facility with our new -- for our new manufacturing facility in India, with the first disbursements expected in the third quarter. Before turning to shipments, I would like to say a word about the current sales freight environment. While there are reports that suggest supply chains are beginning to trend towards normalization on a macro basis, global sales freight conditions remain challenging. Although spot rates for ocean freight have fallen quarter-over-quarter, these benefits were partially offset by increased fuel costs. In addition, we are approaching the peak period in terms of delivery of goods ahead of the year-end holiday season, which represents a potential headwind that may render the recent easing in the shipping rate as a temporary phenomenon. From a logistics perspective, we are still experiencing the impact of port congestion. In the United States, after brief reprieve, we have seen a continuous buildup of congestion on the East Coast as some shippers divert away from the West Coast port to avoid the potential impacts of ongoing labor negotiations. For example, the queue of ships looking to berth at the Port of Savannah has recently increased to 30 vessels, up from zero in the previous quarter. While transit times from Asia to the United States have improved, they remain well above the pre-pandemic averages. In fact, combined with challenges such as port congestion and blank sailings, has led to an estimated 12% reduction in global shipping capacity. Notwithstanding these challenges, we continue to execute on our strategy of employing freight risk-sharing mechanisms in our customer contracts, with nearly all of our recent bookings, either featuring contractual adjustors designed to offset incremental sales freight cost or allocating all ocean freight responsibility to the customer, in either case mitigating gross margin erosion. As of today, we have 32.7 gigawatts of contracts in our backlog that with either sales freight coverage or no sales trade exposure. As you may expect, contracts where customers take on responsibility for the transport have lower ASP than those where we are responsible for shipping. By way of example, one such contract, which is included in the revenue from contracts from customers' footnote in the quarter's 10-Q, is a 2.3 gigawatt sale to a highly valued long-term partner. This volume targeted for low-bin inventory is contracted to supply from our international factories, with the customer being responsible for transportation, which is currently estimated to be $0.04 to $0.05 per watt. Therefore, the ASP for this transaction is lower than the average of the ASP for other sales contract entered into in the period. Note, 4.9 gigawatts of the 11.9 gigawatts, increase in contracts from customers for future sales, includes -- included in the revenue from contracts from customers' footnote in this quarter's 10-Q requires that customers take on the responsibility for shipping. As First Solar had this shipping responsibility, we estimate that the implied ASP of this 10 -- 11.9 gigawatts volume increase would have risen by approximately $0.02 per watt. Of note, we expect the majority of our India factory output to be contracted on an ex works basis, with the customer picking up modules at the factory gates and assuming all transportation costs. Accordingly, we believe headline ASPs in India will be lower than in other markets where we include an assumption of sales freight within the ASP. That said, Alex will address why we expect gross profit per watt for the India factory to be equal or higher than the fleet later in the call. Turning to slide 4. We address our recent shipments. As just mentioned, we booked 10.4 gigawatts since the April earnings call. With respect to future shipments after accounting for shipments in the quarter of approximately 2.5 gigawatts, which is in line with our expectation, our total contracted to-date backlog is 44.3 gigawatts. We are sold out for 2022 and '23 as of April's earnings call and now sold out for 2024, excluding our new India manufacturing facility. We have 12 gigawatts for planned deliveries, excluding India, in 2025 and have 2.6 gigawatts of planned deliveries in 2026 and beyond. As it relates to our India factory, we have seen significant near- and longer-term demand from domestic customers as we anticipate entering into first contracts for the output of this factory within the coming months. Under our bookings policy, signed contracts in India will not be recognized as bookings until we have received full security against the offtake. As such, deals signed but not fully secured will be reflected with the confirmed but not booked portion of our pipeline graph in the earnings presentation. The 10.4 gigawatts booked since April earnings call include an order for 2.4 gigawatts of modules of one of the largest -- one of our largest standing customers, U.S. headquarter, Intersect Power, announced earlier today. These modules are scheduled for delivery in 2025 to 2026, further expanding the horizon for our backlog. This booking is reflective of a broader trend among longstanding U.S.-based customers to strengthen their commitment to First Solar's CadTel thin film technology as they seek long-term pricing security, supply certainty and value for their project pipeline. We are seeing greater geographical diversity in our bookings at among customers negotiating long-term framework supply agreements. Notably, European developers are increasingly recognizing the risk of relying on supply chains that are concentrated in China. As just one example, the French developer, Akuo, which has placed an order for 500 megawatts for its project portfolio in the U.S. and in Europe. Our bookings momentum demonstrates the growing recognition of the risk of pursuing a solar at any cost strategy. Developers that have built excessive dependencies on China state subsidized solar industry are grappling with an increasing volatile pricing and supply environment. A prime example of this increased risk profile is a recently reported lawsuit filed against a top-tier Chinese solar manufacturer, alleging breach delivery obligations, fraud, fraudulent actions and breach agreements related to product traceability information. This direct contrast with the experience of our customers who have benefited from our emphasis on durable partnerships has enabled long-term growth and our ability to stand behind our contracts and deliver on our commitments. Our customers have also benefited from an industry-leading approach to sustainability, transparency and traceability. We believe that our focus on long-term partnerships and our focus on basing of an enduring strategic customer that seeks to partner with First Solar for large-scale multiyear procurements have been key drivers of our success, and it enabled a solid foundation for growth. We also believe that these strategies set us up for enduring success, differentiating ourselves from the highly volatile transactional environment that some of our competitors may operate in and providing longer-term stability and visibility, not just for our customers, but for our shareholders. As reflected on slide 5, our pipeline of potential bookings remain robust. Even at the year-to-date bookings of 27.1 gigawatts, we retain long-term total bookings opportunities of 52.5 gigawatts. Our 17.8 gigawatts of mid to late-stage opportunities include 9.7 gigawatts in North America, 3.9 gigawatts in India and 4.2 gigawatts in the EU. In India, we continue to see meaningful potential as it relates to demand from domestic developers foreign owned IPPs operating in the country and the Indian government's efforts to boost demand certainty for domestic manufacturers. Similarly in Europe, we are seeing growing demand where geopolitics and the war in Ukraine have led to an urgent effort to deploy more renewables as the EU works to diversify its energy portfolio. Turning to technology. We are pleased with the progression of our current road map. As previously stated, our road map provides us with a high level of optionality, allowing us to pursue enhancements to our product design and energy profile as well as the path to potentially offer a true next-generation solar module for the residential market. On the last earnings call, we had announced that our R&D teams are continuing to make progress on developing the bifacial attributes of our CadTel semiconductor as we reaffirm the commercial, financial and operational thesis of the bifacial product. As our bifacial program evolves from the research level to large preproduction runs, our R&D team is working to achieve field validation, including operational and reliability data. This is necessary to ensure a viable path to large-scale commercial manufacturing. In parallel, we are working to stand up the supply chain necessary to help support the eventual introduction of a bifacial CadTel module. While we expect manufacturing line modifications to be minor, a bifacial CadTel module will have different material requirements necessitating adjustments to our supply chain. I'll now turn the call over to Alex, who will discuss Q2 results.

Mark Widmar:

All right. Thanks, Alex. To conclude, I would like to discuss the rapidly evolving policy environment both at home and abroad. Beginning in the United States, like many in the energy sector, we were pleasantly surprised by yesterday's joint announcement from Senators Manchin and Schumer regarding the Inflation Reduction Act. We are encouraged that yesterday's announcement made a clear reference to investment in energy security and technology-neutral climate change solutions, and we are supportive of the balanced approach to corporate taxation. While we are still reviewing the full legislative tax release last night, we are hopeful that the advanced manufacturing production credit, if passed, helps deliver the incentives required to boost domestic solar manufacturing and secure our nation's energy independence. As the legislative process moves forward, we urge both chambers to move quickly to pass this critical legislation, which represents the first real step to designing a clean energy industrial policy that addresses climate change while simultaneously codifying American energy security. With respect to 45X, the advanced manufacturing production credit, we urge Congress to ensure that the manufacturing tax credit designed to incentivize domestic solar supply chain are fully refundable in order to deliver the intended result. This legislation’s extension of the solar investment tax credit appears to enable crucial demand-side policy certainty. We're hopeful that, if passed, legislation maintain the domestic content in Senate that will help further ensure that U.S. taxpayer dollars are used to help expand manufacturing here at home. Turning to our considerations to further expand our manufacturing footprint. Our criteria for investment remains unchanged. These include geographic proximity to solar demand, the ability to export cost competitively into other markets, access to cost-competitive labor, low energy and real estate costs, access to or the ability to build a cost-competitive supply chain to support the sourcing of raw materials and components, and as we've repeatedly stated, the domestic policy environment. We agree wholeheartedly with Senator Manchin that the United States needs to remain a global superpower through innovation. As it relates to the potential for our own manufacturing expansion in the U.S., we had previously stated that we were evaluating the potential for future capacity expansion but noted that we first required clarity on domestic solar policy. In light of these latest developments and should the Inflation Reduction Act get passed with consistent language on solar-related tax credits, we plan to pivot quickly to reevaluate U.S. manufacturing expansion. Moving ahead, we continue to be optimistic about the policy environment in Europe and in India. Over the last 10 months, we have met productively with Prime Minister Modi of India and attended the Investment Conference hosted by President Macron of France in addition to having numerous constructive meetings with members of their cabinets. These governments, along with others that are -- we are engaged with are seeking to diversify and grow domestic capabilities. As calls for resilient domestic supply chains grow louder in solar markets around the world, we believe First Solar is uniquely well-positioned to offer a viable alternative based on a proven repeatable vertically integrated manufacturing template. Before I turn the call back to Alex to summarize today's key messages, I would like to note that we have issued our 2022 sustainability report. The report highlights our continued progress across a range of environmental, social and governance metrics, detailing among other accomplishments how we have successfully lowered our environmental footprint while advancing our diversity and inclusion goals. These achievements demonstrate the strength of our commitment to the principles of responsible solar, placing at the heart of our business as we invest in innovation and scale. We are proud that First Solar is an example of how solar can be competitive without compromising our principles and purpose. We have shown that solar technologies can be sustainably scaled without people and the planet paying a high price. Alex will now summarize the key messages from today's call.

Operator:

[Operator Instructions] Your first question comes from the line of Ben Kallo with Baird.

Mark Widmar:

So Ben, I guess, maybe one way to start, I think we've guided to a number that's, I don't know, 7% or 8% gross margin for the module business in the environment that we're in right now. Okay? This for 2022. So, what Alex has said in his remarks is that obviously, embedded in that low gross margin is the headwinds that we're dealing with around sales freight and with commodities such as aluminum and eventually steel when we introduced Series 7. The impact of that -- the headwind is 11 or 12 percentage points or so of gross margin. So just normalizing for that -- assuming -- it can come through either one away. It can come through as an incremental ASP -- I’m just assuming ASPs stay where they are right now and then we see as a benefit of $0.03 that Alex referenced as a lower cost because sales freight normalizes down to 2.5 cents, which is where our contracts anchored to, and aluminum comes back to historical levels that we have seen previously. So, that gets you basically at your threshold of your 20% relative to what we guided. Now, the guide is also for the full year. And if you look at our gross margin progression, the gross margin is higher in the end of the year. So if you use the exit point, you actually will be north of 20% gross margin. Alex also indicated that we still are -- even though in this challenging environment, we are seeing a cost reduction. So, we are seeing year-on-year cost reduction of about 5% -- 5% to 6%. So, there's an incremental margin expansion there. So when you just layer those together, you're solidly into the 20%. And then if you capture the value of the technology adjustors, then you're meaningfully better than that, right? So, I think everything that we have right now, what we have line of sight to around where we've contracted in terms of our ASPs, and as we've indicated, they're relatively flat or slightly increasing as we go across the horizon. And the other actions that we've taken around our contracting and then capturing the value of our technology road map that we should be very comfortable achieving the minimum threshold of 20%, in my mind, we should do much better than that, but there's still a lot still in front of us to execute on. But I think we've given ourselves a great opportunity to show very strong margin -- gross margin percent as we move forward.

Operator:

Your next question comes from the line of Philip Shen with Roth.

Mark Widmar:

So look, Phil, as it relates to capacity expansion, effectively from this point in time, if we -- something here in the U.S. from a point in time, it's going to take us somewhere around 24 months, maybe slightly less. Hopefully, we see some relief in some of the supply chain challenges that we've been dealing with over the last couple of years. So, maybe we can do something faster. But by the time you put a greenfield with a new building and then the tools, the good thing about it, as we've mentioned previously, is we've been working with our vendors to keep them teed up, knowing that there was going to be another factory. We're actually very pleased with the -- where we are right now and the tool move-in scheduled that we're seeing and Perrysburg 3 and then what we have currently lined up for the India expansion, so. And we've told our vendors, we want to have a cadence of six months after that for at least one more factory and maybe we'd go beyond that given the current environment and the options that we have, not only here in the U.S., but in the EU in India as well. So, it's about a 24-month window. EU could be a little bit faster because we still do have a facility in Eastern Germany that potentially could be utilized for incremental production. But here in the U.S. and even in India, it's going to be on a longer time line accordingly because of that the challenge we're dealing with right now with the supply chain, and maybe we'll see some relief. But, the way I look at it in terms of priorities, if the Inflation Reduction Act goes forward, I think at least one new utility-scale factory, we would love to complete our discussion and operationalize our tandem product that we referenced as -- in a partnership with SunPower for residential market. So that's in the mix as well. And maybe could we throw another U.S. factory into the mix? There's a potential. But I'm also trying to make sure we're looking at every other avenue to get incremental throughput if this goes through. For example, our team has done a phenomenal job of driving incremental throughput through the existing factory. So, let's look at additional constraints within the factory. Where is the constraint? Can we add some capital to the existing production here in the U.S., the 6 gigawatts or so that when we get Perrysburg 3 up and running to add another tool that can increase throughput at the constraint that allows you to optimize across the entire tool set? There's another path there to drive more throughput across the platform, which is one thing that we clearly want to continue to look at. As it relates to the Inflation Protection Act, and in particular, the 45X provision, look, we believe -- and again, we still need to go through, read everything and to consult with everyone that -- to ensure our interpretation is accurate. We believe that we have a full entitlement to the $0.04 plus the $0.07, which would be the sell-in module. The other thing, Phil, I think I've said to you in the past is that the spirit of the legislation, which largely is the same as what was originally in prior versions, was to ensure thin film was not going to be competitively disadvantaged relative to crystalline silicon. And so, the structure and the way it's worded if it were to be passed as it is right now, we also believe that we would benefit from the wafer. And the wafer provision, I think, is $12 per square meter. So, you take that, our modular Series 6 today is about 2.5 square meters, which would imply there's about -- on a module basis, not on a cents per watt basis, there's potentially $30 benefit per module. So, that's another lever that we are going to try to make sure we can go and capitalize on. That one -- again, we believe the intent is to do that, but it's another area that we have to work on. But we want to make sure that anything that is finally passed into law that we are not at all competitively disadvantaged and that we're fully entitled to all the benefits that other technologies such as crystalline silicon would be able to capture.

Maheep Mandloi:

Could you just clarify the base ASPs assumption? I think you made a comment on not declining from '22 to '25. And what puts and takes should we kind of expect to that ASP going forward? Thanks.

Maheep Mandloi:

Just puts and takes with that, just with the adjustors and for aluminum steel in shipping and other things.

Mark Widmar:

Yes. And I want to just make sure, it's clear because sometimes people want dismiss, well, if commodities or sales freight normalize, then there won't be any benefit to the ASP adjustors. Completely understand. But what it means is our cost per watt will decline then by the corresponding $0.03 a watt. So, either it will come through as a higher ASP if we stay in an inflated environment that we're in right now or it's going to come through at a core cost per watt reduction. And I think sometimes people are dismissing the ASP as if the realization won't be captured, without understanding that what it drives to is the lower cost per watt. Either way, in my mind, it's going to add about $0.03 of gross margin across our capacity plans that are getting up to 15 or 16 gigawatts. So, there's a meaningful benefit one way or the other, either incremental ASP or lower CPW across, call it, 15 or 16 gigawatts production as we move forward.

Joseph Osha:

Following up on that previous line of question, there's been lots of talk about the cost adders and the technology adders. But I'm wondering, is there any sort of apples-to-apples per watt cost reduction road map you can talk us through as the technology continues to advance? Because that's, I remember in the past, something you used to communicate about.

Alex Bradley:

Yes. And Joe, if you think about, as Mark said, a 4% to 6% cost per watt produced number this year, that's the decline. If you go back to the slides that we showed in our Q4 earnings and guidance call, back in end of February, early March, there's a chart in there that shows you the driver of the cost reduction. Those still hold true. If you look through where we have what's the modules, efficiency, throughput and yield, those key drivers to look at this. So, we haven't updated that chart from a new cost perspective, but the same drivers of cost per watt reduction still exist there. We also have on that chart bill of materials. As Mark mentioned, there are bill of material reductions that we would expect in ordinary course. However, we're in an inflationary environment, we also protected against some of the key drivers through the adjustors we have in our contracts. So that's another resource you can look to.

Brian Lee:

Been a lot of focus around the gross margins and the cadence here. So, I guess, I'll throw my question in the ring as well. The aluminum price, steel pricing environment, also freight, they've all sort of eased a bit recently per your earlier comments. When does it really start to impact the P&L and margins? I know you're talking about a 20% baseline for gross margin when things kind of normalize. And then on top of that, you get some of the tech adders that could take gross margins much higher. But as we think about, let's just say 2023, the cadence, it doesn't appear all of that is necessarily going to normalize. So, fair to assume we're going to see a pretty gradual margin cadence through the rest of this year and into most of next year? And then, with tech adders and some of the new capacity in India and Ohio, the real step-up starts to happen in '24. Just trying to get a sense for how we should budget expectations because there's a lot of moving parts there obviously over the next couple of years for the margin trajectory.

Operator:

Your last question comes from the line of Colin Rusch with Oppenheimer.

Mark Widmar:

Yes. So, one of the things we did highlight, if you look at our pipeline as well, I mean, the diversity of our pipeline, especially with near term as well as long-term opportunities in Europe, has grown significantly. I was actually over in Europe a few weeks ago and talking with a number of different customers. And there's a really significant demand and opportunity for partnering with First Solar, no different than what we've seen here in the U.S. and what we've seen in India. I mean, there's fatigue, and we referenced even a lawsuit, a very large litigation against one of the Tier 1 Chinese suppliers. They're fatigued by that, and they want to find someone who they can work with that ensures reliability and certainty. And obviously, there's a significant demand in the market, EU as they're trying to evolve off of their dependencies of Russian oil and gas, and they don't want to reposition that dependency then into another potentially adversarial country for their solar and climate change goals that they have. So, we're in deep discussions with a number of counterparties. They're trying to build an offtake agreement, and we're working through site selections already to try to figure out if we were to make a decision, what would be optimal. We do have cell sites in Eastern Germany. Obviously, the footprint isn't ideal for a Series 7 type product or 3.3 gigawatts of production. But look, we're also evaluating what is the right product for the European market. I mean could it be a combination of the utility scale or also could it be a smaller form factor, maybe a multi-junction tandem product for high-efficiency space constrained spaces. I mean it could be that's the right product to go to market in Europe. And then our Eastern Europe factory -- Eastern Germany factory looks a lot better to accommodate a footprint around that size. So, I would say I'm very encouraged. A lot of opportunity. I think it's a matter of just making the commitment and the contractual obligations and offtakes and being able to secure multiyear supply agreements to have -- provide a little more confidence we would like to have to enable manufacturing in the EU. I think it's pretty promising right now. We still would like to see some movement on the policy side a little bit. I think they're doing a number of positive things there, even including things like CO2 footprint requirements, restrictions as it relates to forced labor and some of the other challenges that we're also seeing in the U.S. trying to deal with their supply chains that are dependent upon Chinese production. So, a lot of good things happening in the EU, and it's a very important market for us, and we're looking at what's the best way to serve it.

Operator:

Good afternoon, everyone. And welcome to First Solar’s First Quarter 2022 Earnings Call. This call is being webcast live on the Investors section of 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. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mitch, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon. And thank you for joining us today. To begin, while our $0.41 loss per share results came in within our internal expectation for the quarter. It is reflective of what is projected to be a challenging 2022 from an earning standpoint. Due to the factors that we highlighted during our call in March, in which we’ll address further today. That said, we are encouraged by our strong bookings progress. As we booked 11.9 gigawatt in less than 60 days since the prior earnings call, bringing our year-to-date bookings totaled 16.7 gigawatts. Further setting ourselves up for 2023 and beyond, an important feature of many of these recent bookings as previously discussed is that they include adjusters to potentially increase ASPs based on the realization of our technology roadmap, achievements, and sales risk sharing mitigation. In addition, we have begun to employ a similar ASP adjustment mechanism related to aluminum exposure. Later in the call, we will provide an indicative view of how these pricing adjustments could result in an ASP potentially significantly greater than the baseline reflected at the time of our bookings. In short, while these contracts have a baseline ASP that is reflective of the value of the product, we are manufacturing today. That ASP has the potential to increase, to capture the value of our product or technology enhancements or to offset sales rate and aluminum margin erosion risk. We believe this agile approach to contracting will continue to attract customers looking for long-term certainty and value. The combination of reliable competitive pricing and supply certainty, lower political and compliance risks and access to our best available technology is a tremendous value driver for sophisticated customers who may be fatigued with a volatility uncertainty. That can be experienced transacting in this industry, particularly in the current environment. It is worth noting that many of these recent bookings are with long-term repeat customers with relationships that span hundreds of megawatts of previously installed capacity. In addition, our most recent bookings include significant volume from customers new to First Solar. These decisions to work with First Solar and our technology speaks volumes, not just about the trust in the company, the value of our differentiated CadTel semiconductor and our adherence to principles of responsible solar, but also the risk of pursuing a solar at any cost strategy. By which we mean an approach that would otherwise compromise values and ambitions for projects powered by truly low carbon and environmentally superior solar. This trust is in part built upon the company’s dependability and its ethos of honoring its commitments. Some argue that the current volatility in the industry in general and the module availability in pricing specifically, at this particular moment in time provides the company with an opportunity to pursue repricing of legacy contracts. Contracts that we are delivering on today, but which we’re entered into in price several years ago. We take a different view. We are continuing to build First Solar for the long-term and our partnerships with our highly valued customers is critical aspect of that ambition. We believe the benefits that come with continuing to serve a base of enduring strategic customers that seek to partner with a company for large scale multiyear procurements outweighs the potential long-term adverse impacts that could result from taking a transactional versus relationship based approach in the short-term. Turning to Slide 3, I’d like to review some highlights and provide some updates from the quarter. As just mentioned, we booked 11.9 gigawatt since the March earnings call. After accounting for shipments were approximately 1.7 gigawatts, which was in line with our expectation. This brings our total contracted backlog to 36.4 gigawatt. Manufacturing domestics remain strong despite some planned downtime for upgrades in Vietnam in February and March and our Q1 production of approximately 2.1 gigawatts. With regards to supply chain and logistics, as mentioned on our earnings call in March, we have no direct Tier 1 suppliers in the Russian/Ukraine conflict area. However volatility in various supply markets, such as metals, lumber and fuels is further exasperating the current inflationary environment. In addition, we have some indirect exposure through our equipment vendors as relates to the timing of manufacturing delivery of tools for our new factories in Ohio, in India. Moreover, the conflict and current inflationary environment have contributed to dislocations in certain currency markets, Alex will discuss the impact to First Solar later in the call. Regarding freight while pricing in the transoceanic freight market continues to be a historic highs and to represent a headwind in 2022. We have briefly seen increased container availability, which we believe as a result, a China’s pursuit of its zero COVID policy with associated lockdowns. That said, transportation costs and transportation duration continue to be significantly higher in the historic norm. For example, in Q1 shipments from Southeast Asia to the West Coast averaged over 130 days compared to approximately 60 days in 2020. Transit times have been exasperated by the Russia/Ukraine war at several global logistics and shipping companies announced sensations of shipping to Russia, further stranding equipment and vessels and intensifying backlogs and delays in global shipping industry. Turning to Japan, as we noted during our March earnings call. In late 2021, we received an unsolicited offer to acquire our Japan project development and O&M platform negotiations related to this potential sale are progressing well. And we expect in Q2 to enter into definitive agreements, to sell these businesses. With closing taking place, following satisfaction of customary closing conditions. As previously noted, should this transaction not be completed for any reason, we would expect to either continue our approach of selling down our contracted projects over time or consider an alternative buyer for the platform. Finally, construction of our third manufacturing facility in Ohio and our first manufacturing facility in India remain on track. Although with the aforementioned risk related to equipment manufacturing and delivery schedules. Beyond these facilities, we continue to evaluate further expansion opportunities. As we have discussed before with our new factories anticipated to represent the lowest cost of production end of fleet, they’re proximity to demand. And given our large fixed operating cost structure, growth is expected to provide significant incremental contribution margin. As we considered options for growth, we have increasingly been approached to consider further expansions with various financings, ownership and off-take structures. As industry participants continue to embrace the value of entering into long-term partnerships with reliable module suppliers. While we have made no decisions at this time, we have receptive to enabling the ambitions of our partners seeking dedicated supply. To this end, we continue to engage with our tool and equipment vendors to ensure they have visibility into and the ability to support any potential expansion. Turning to technology. We are pleased with the opportunity – optionality, excuse me. Our current roadmap provides both in terms of enhancing our form factor, product design and energy profile in utility to scale markets, as well as providing a potential route to scale into the residential solar market. With regard to form factor, we expect our Series 7 module, which is to be produced at our new factories in Indiana – Ohio and India will feature a glass area that is approximately 14% larger than our Series 6 plus modules. Unlike Christmas Silicon modules, which are constrained by the industry standard cell sites and risks such as cell tracking, CadTel has no such form factor or size limitation. A larger form factor benefits our cost per what produced and allows our customers to install more watts with less balance of system cost. In terms of design, we expect the mounting system to be regionally optimized in the U.S. to a tracker application and in India to a fixed tel application. We believe the redesign structure will combine lower cost to produce with greater installed speeds in the field, benefiting both for solar and our customer. As relates to energy, in addition to benefit associated with degradation, temperature coefficient, sector response and shading, our R&D team continues to make progress on developing a bifacial attributes of our CadTel semiconductor. We are continuing to run tests that we expect will enable us to commercialize the technology across our module platforms and have recently produced another set of preproduction prototypes for additional field and product testing as we work to reaffirm the commercial, financial and operational thesis of – bifacial CadTel. Looking at the residential market. We recognize the value of high efficiency, aesthetically pleasing and domestically manufactured product. To that end, we continue to evaluate the prospect of leveraging the high band gap advantage of CadTel in a disruptive high efficiency low-cost tandem or multi junction device. We believe that a thin film semiconductor is essential to achieving the highest performing tandem PV module. And that CadTel is well placed to enable this leap forward in high performance. With a path in the midterm to achieve a 25% efficient multi junction PV module. As we seek to grow our presence and competitive position in the residential and C&I space, this type of module has the potential to be disruptive and provide us with a competitive advantage. In that spirit, we are in discussions with SunPower to potentially develop and eventually introduce an advanced residential solar panel, a stack tended module platform that combines our advanced thin film CadTel semi conduct with responsibly source crystal silicon cells. We do not intend to disclose further any developments with respect to this discussion, except to the extent an agreement is reached. Finally, as highlighted in our last earnings call, our technology team has been conducting extensive testing to measure the full performance entitlement of cure in high volume manufacturing conditions. Since our last update in March, we have concluded that while the potential for cure remains its implementation will be delayed beyond 2022. We will prioritize other aspects of our R&D stack in the near-term to ensure focus on the three current technology pathways that we believe can be commercialized in the near-term. Series A bifacial CadTel and tandem multi junction devices, the success of these three pathways is not contingent on cure, which will continue to be developed in parallel. We have continued to advance progress on our previously discussed amendment and advanced stage negotiations to amend certain customer contracts, utilizing cure technology by substituting our enhanced Series 6 product. We maintain our expectation that these amendments will impact 2022 revenue and gross margin by approximately $60 million, which is reflected in our guidance. Moving to Slide 4 with the aforementioned 11.9 gigawatts of bookings is the prior earnings call, bringing our total year-to-date bookings to 16.7 gigawatts and factoring in shipments of 1.7 gigawatts in the first quarter are future expected shipments, which extend into 2026, our 36.4 gigawatts. Including our year-to-date bookings, we are sold out for 2022 and 2023, have 9.6 gigawatts for plan deliveries in 2024 and have 7.6 gigawatts for plan deliveries in 2025 and beyond. Including these bookings are gigawatt size deals entered into over the past several weeks with among others, Silicon ranch, interjects renewable energies, and Leeward Renewable Energy for delivery in North America and internationally. Turning to Slide 5. I’d like to take a moment to walk through the recent changes in our contracting structure. This change in approach provides product certainty today. As our baseline ASP is reflective of today’s technology. It further provides ASP upside to the extent we realize future module technology improvements, including new product designs, which deliver a better energy profile for our customers. And finally, it provides greater logistics and commodity gross margin risk mitigation through ASP adjusters, linked to aluminum and sales rate costs. Every contract is different and not every recent includes every adjuster described here. To the extent that such adjusters are not included in a contract. We believe that baseline ASP reflects a commensurate risk and opportunity profile. As it relates to technology and product adjusters, we have previously and will continue to have both upward and downward adjustments to ASPs to reflect the BIM class delivered reflective of the baseline committed under the contract. As it relates to other technology roadmap and product features, under our previous structure, we would forward sell assumed improvements with no upside and a downside risk in the event, these were not achieved. As represented by the red circles on the slide, under our updated structure. We forward sell today’s technology with upside for technology improvements as shown by the green circles. As shown by the dotted box on the side. And as we have reflected in the 10-Q filing as of March 31, 2022, we had approximately the 9.8 gigawatts of contracted volume with these adjusters, which is if realized, could resolve an additional revenue up to $0.3 billion or approximately $0.03 a lot. Note, of our 4.8 gigawatts of calendar quarter bookings, 1.4 gigawatt did not include technology adjusters, but with price with an approximate 10% premium, the remainder of the calendar quarter of bookings. As relates to standard versus high load modules, our previous structure assumed a certain mix. And any deviation from that mix could imply greater high load modules, which have a higher cost per watts reduce, could have in reduced gross margin. Under our updated structure, we have received an increased ASP to offset this additional cost, therefore preventing gross margin erosion as represented by the blue circle on the slide. As it relates to sales trade and aluminum, we were previously exposed to incremental costs and logistics and commodity markets under our updated structure, we have contractual adjusters designed to offset such incremental costs and prevent gross margin and erosion. As of today, we have 23.2 gigawatt of contracts with either sales freight coverage or no sales freight exposure. The aluminum coverage class was introduced after Q1 quarter end and is in present in 11 gigs of our most recent bookings. Indicatively, assuming today’s sales tray and aluminum environment, a contract with these sales rate and aluminum adjusters with increased ASPs by approximately $0.03 per watt above the baseline. Finally, as it relates to policy, many of our updated contracts in the United States now specify sharing related to a potential upside for U.S. made modules under an extension of the investment tax credit. As reflected on Slide 6, our pipeline of potential bookings remains robust. Even after booking 11.9 gigawatts in less than 60 days, our total bookings opportunity of 54.1 gigawatts. Our 23.7 gigawatts of mid-to-late opportunities include 16.1 gigawatts in North America, 5.4 gigawatts in India, 1.7 gigawatts in the EU and 0.5 gigawatts across other geographies. We are especially encouraged by the continuing growth in our India pipeline, which we believe positions us well to realize multi-gigawatts of bookings over the next several quarters. The global sustained market demand is driven by the fact that we are on the edge of a new age of electrification. One in which essentially everything that can be electrified will be. It is our next big evolutionary leap and our best bet at fighting climate change. As we power transportation and virtually every aspect of our lives, including power producing fuel cells with electricity. Before turning over the call to Alex on Slide 7, I would like to address recent policy developments in the United States, Europe and India. Trade and industrial policy decisions and the upending of the global geopolitical status quo both play a significant role in impacting market dynamics as well as continuing to inform our growth strategy. Starting with the U.S. in late December 2021, President Biden signed the Uyghur Forced Labor Prevention Act, which received widespread by partisan support in Congress. This acts rebuttable presumption against the importation of goods produced in the Xinjiang region soon to be produced with forced labor is set to go into effect in June this year. There exist practical solutions to reduce the risks of purchasing modules associated with forced labor. For instance, the Responsible Business Alliance, the world’s largest industry coalition dedicated to supporting the rights and wellbeing of workers and communities in the global supply chain offers the leading standard for onsite compliance verification and effective shareable audits in the form of its validated assessment program. Yet this established model has not been widely adopted by the solar industry, but the First Solar being the first and at this point only large solar manufacturer to join RBA. In our view, transparency and traceability are crucial to reinforcing our industry’s social license to operate. The transition to a sustainable energy future and the fight against climate change must not come at the price of human rights. Turning our focus to domestic and trade policy. The Biden inherits administration as the opportunity to deliver a meaningful and durable long-term solar industrial policy through the use of a manufacturing incentive. We remain fully engaged in advocating for legislation that would revive climate and clean energy investment, including the framework for manufacturing tax credits established by the Solar Energy Manufacturing for America Act introduced by Senator Ossoff. On the trade front, in response of addition by Auxin Solar, the U.S. Department of Commerce has initiated anti-circumvent inquiries against crystalline silicon imports to the United States that undergo minor processing if any at four Southeast Asia countries. We believe this is a positive step towards addressing the problem of mainly crystalline silicon Chinese modules and cells that are completed in Southeast Asia in an attempt to avoid tariffs. For too long, the American solar manufacturing industry has been undersea from the Chinese headquartered in subsidized companies that have been violating the rules of free and fair trade. The data shows that since the underlying anti-dumping and countervailing duties on Chinese cells and modules were put in place, the value of Chinese imports to the United States decreased by 86%. During the same period, the value of imports from four Southeast Asia countries that issued increased by 868%. Prior to the underlying anti-dumping and countervailing orders, there was virtually no crystalline silicon cells and modules produced in these four Southeast Asian countries. There is still a very limited polysilicon ingot or a wafer production in these nations. Instead they source the high value wafers from China, which controls 99% of global crystalline silicon wafer production. Additionally, China is the dominant supplier of the other key imports – inputs, such as aluminum, silver plate, UVA sheets, back sheets, aluminum frames and junction boxes. Simply the data truly speaks for itself. We’ve heard The Sky Is Falling narrative pushed by Robin Hood’s advocating for China to have free rein in the U.S. market. Their doom and gloom is telling it suggests that they are afraid that the Department of Commerce will find that the Chinese solar manufacturers in fact, engage in circumvention and will hold them accountable for their unfair and unlawful trade practices. While the obvious characterize Auxin as a single company seeking to inappropriately exploit the law. It is precisely cases like this that the law are designed for. Indeed Commerce has conducted 85 circumvention inquiries covering all types of industries and of these approximately 80% have been decided in the firm. We also reject the false narrative that Commerce investigation and pursuit of the rule of law will adversely impact the administration’s climate ambitions. Trading away responsible ultra low carbon solar manufacturing for dependency on China is deeply misguided because China polysilicon is heavily reliant on cold produced electricity. When the price of coal goes up, so does the price of polysilicon and crystalline silicon solar panels, whether it produced in Xingyang or in the United States emissions exasperate the global climate crisis, smoke facts, not visible from Pennsylvania avenue are no less harmful to the environment. To be clear, the anti-circumvention investigation is not about prohibiting imports, but about ensuring the imports compete fairly in the U.S. market. We welcome the robust international competition and it’s fair and rules based backdrop. The problem today is that dumped and subsidized imports distort competition and cycles of innovation with the Chinese government warping investment decisions and dictating outcomes. The rules are enforced, we are confident that the U.S. solar demand will be met and that we will have a stronger American solar manufacturing industry serving as a secure environmentally responsible source of supply. More broadly, we firmly believe that the United States need a combination of durable industrial policy, smart trade policy and the enforcement of the rule of law in order to build back American solar manufacturing and innovation. At no point should this vital transition to a sustainable energy future come at the cost of American jobs, investment, innovation and national energy security. Moving to Europe. We are seeing three pivotal shifts in the policy space. The first is the growing momentum around accelerating renewable energy deployments and bringing forward targets. The second is the recognition that the dependencies on authoritarian states are strategic vulnerabilities. And the last is the rapid strengthening of bilateral transatlantic relationships. All three factors are being driven by Russia’s evasion of Ukraine earlier this year. With regards to renewable deployment, face not just with the risk and uncertainty of gas supplies, but also the prospects of continuing to funnel billions of dollars to Russia through gas purchases, European leaders are working to speed up the region’s energy transition. The European Union’s REPower EU initiative aims to cut the dependency on Russian gas by deploying more renewable and accelerating R&D in future fuels such as hydrogen. Individual European countries are accelerating their transition plans. For instance, Portugal aims to have 80% of its electricity come from renewables by 2026, up from the original target of 60% in the same timeframe. Germany is also moving forward with a goal to double renewable energy generation from 40% today to 80% by 2030, an increase of 15 percentage points over the previous target. Significantly the coalition government in Berlin included a cause in the renewable energy legislation package, acknowledging that renewable energy deployment is in the best interest of country security. With regards to strategic vulnerability there’s growing concern in the EU about replacing energy dependency on one authoritarian state with another, including and especially China, which applies virtually all of the solar panels to the region. European leaders are underscoring China’s position as a systematic rival and threat that operates in an opposition to Europe’s social and democratic model, liberal values and recognition of international law. Finally, we are encouraged by the strength of the bilateral relationships between the EU and the United States. Near-term cooperation is focused on the immediate needs to alleviate gas shortages in Europe, longer-term shared climate sustainability and energy security goals can lead to more collaboration on clean energy technologies and their deployment. As both the United States and Europe work through their challenges of rapidly scaling domestic solar manufacturing capacity, they should consider the template that India has established. There are a few better examples of how a combination of trade safeguards, manufacturing incentives and tangible clean energy goals can spur domestic manufacturing than India. Today India is expected to have 40 gigawatts of new sale capacity and 50 gigawatts of new module capacity come online by 2025. If all of this new capacity does materialize, it would not only make India self sufficient, but it would also create a significant amount of export capacity. This is a direct result of the effective combination of tariffs and non-tariffs barriers to level the playing field. The Indian government’s production length incentive scheme for domestic manufacturing and government clean energy targets that would see 25 gigawatts of new capacity deployed every year until the end of the decade. India’s all of government approach is clearly working and is perhaps one that we can all learn from. It’s now my opportunity to turn the call over to Alex who will discuss Q1 results.

Operator:

Thank you, sir. [Operator Instructions] Your first question comes from Philip Shen with ROTH Capital Partners. Please go ahead.

Mark Widmar:

All right. So Phil, let me make sure I understand your first question. And actually, if you look at that contracting slide that we have in the presentation indicative contracting, there’s a dotted box that it’s around, I think four different components. One is the temperature coefficient the long-term degradation rate, bifaciality and Series 7, I think is the four that it’s around. And if you look down at the bottom, there’s a note down there that indicates that that is reflected in the 10-Q disclosure. So that three – up to $300 million number that we reference is taking the value of those four items into consideration. You referenced a few things around, well, what’s not included. So yes, there are certain things that are not included such as domestic content. So if we source from our facility in Ohio, whether existing facility or new facility there are some provisions in our contracts that would say there’s a premium for U.S. made content and that’s even independent of whether or not it even gets captured in a U.S. content ITC. So we highlight at the bottom of the slide that another thing that we’ve done with our contracts is that it’s the extent that there becomes a U.S. content criteria that is used for the ITC. We’ve contracted that now to provide upside. So there’s pretty significant value uplift for that 10 percentage point, which is what’s currently being considered for domestic content for ITC. But beyond that there’s also a domestic source content that some of our customers just would rather have U.S. made and domestic source product. And to the extent they do, there’s a premium that we are asking for in order to reserve that type of allocation from that factory. As it relates to the anti-circumvention and the impact to pricing. Look, it’s pricing and it’s not just near term, but as you can see we booked 12 gigawatts since the last earnings call. And a lot of that is going out into 2024, 2025 and even we’re starting to see some momentum going into 2026 as well. That’s obviously a strong indicator fundamentals underlying demand. And one of the things that we alluded to in our prepared remarks is we refer to as this kind of the edge of electrification and kind of this revolutionary age that we’re in right now. We are seeing a lot of really strong demand. And the way I always sort of positioned it from our perspective, we sit on the front end. So we are enabler of that electrification. And so you have to start off with taking photons and making electrons, and then whatever evolution happens for electrification or transportation or building or other sources of fuels and other things along those lines, we’re going to be a critical strategic enabler of that. And we’re starting to see a lot of momentum and demand in the marketplace right now, especially for green hydrogen and green not just in maybe some of the places you would anticipate it maybe in the Middle East or in Europe that in India, and even here in the U.S., we’re starting to see some inflection points around that. So there’s just a strong fundamental underlying demand for our traditional PV and PBS market. But also as we’re starting to see inflection points now with new demand curves starting to come off for things such as green hydrogen and green ammonia. We are seeing better pricing. If you look at the backlog of where we are, our baseline price has improved from the average that was there at the end of the year. And then when you factor in the benefits of the technology adjusters that we have as well as to the extent that sales rate stays inflated, where it is now, and as well as with aluminum. The combination of those two could add up to $0.06 a watt to where our current pricing is on the baseline. But anyway, we’re encouraged. We’re seeing the positive signs. I’ll let Alex talk a little bit more about Q1 ASP.

Mark Widmar:

Yes. But, I think Phil, when you look – maybe to answer your broader question as well, is that we’re seeing strong demand. We feel like we’re getting attractive pricing in the market. We’re continuing to drive cost down as Alex as indicated, even the backdrop of all the challenges we’re dealing with, we still anticipate a 4%, 6% cost per watt reduction. And then as we highlighted before Series 7, when introduced will be the lowest cost products in our fleet. So that’s even a lower cost profile than we have today. So the combination of all those, you couple that with the contribution margin flow through from incremental growth, we’re pretty excited about 2023 and beyond, and the opportunities that we’re positioned for right now and continuing to look to grow beyond what we already have committed to with the strong backlog that we have right now.

Operator:

Your next question comes from the line of Ben Kallo with Baird. Please go ahead.

Mark Widmar:

Yes. So Ben, I think if you just look at – I mean, right now, when you pull out the effects of sales rate on the quarter, I think we’re in the high teen, 17%, 18%, something like that from a gross margin without the impact of sales rate. And if you – if you then include the technology adjusters, which is another 10 percentage points on top of that, you’re going to get to a gross margin that’s going to be net 25% or north of that 25% number that you reference. So that’s one way to look at. The other way to look at it, Ben, if we had the commodity adjusters in this current quarter, we would’ve added 10 percentage points to where we are right now, including the impact of sales rate from the commodity standpoint. And we also had a very low shipment quarter. I mean, this is one of our lowest shipment quarters that we’ve had in a long time, as Alex indicated 1.3, sold quarters. 1.3 gigawatts is one of the lowest quarters that we’ve had. So that’s obviously drawing kind of weight against some of our fixed costs in our production facilities that drove to a lower gross margin. You’ll see that being leveraged as we grow sales volume as we expand throughout the year, we’ll be averaging close to around 2.5 or 2.6 gigawatts a quarter, so essentially double where we are right now on a sold basis to hit our revenue targets for the year.

Ben Kallo:

Great. And then congrats on the bookings. How do you think about with the backdrop that you outlined of all the legislative and regulatory positives potentially for you? How do you think about the expanding capacity as you sign up contracts? And thank you very much.

Alex Bradley:

Ben, one thing I’ll add. Our technology is being unique and different so is our toolset and the manufacturing required for that. So we’ve been engaging with suppliers to ensure that we have line of sight on critical path tools for further expansion. So we continue to have those discussions with our suppliers.

Maheep Mandloi:

Hey, thanks for taking the questions. Through customers revised pricing structure. Can you just provide some more visibility around how many contracts and the backlog are under this new structure with reference to the slide in today’s tech or is it fair to assume only the booking since the Q4 call have this new structure and also just wanted to get a thoughts on the cadence we should expect for 2022 in terms of shipments or revenue recognition. Thanks.

Alex Bradley:

Yes, as it relates to the cadence of shipping and RevRec, there’s a lot of variability given, as we mentioned, the transit times being higher, lot of our uncertainty around sales freight, obviously we have more visibility to our U.S. transit. And that helps, but I would say you’re going to definitely see a backend profile so you can expect to see a little more, probably closer to two-thirds versus half of shift volume and sold volume being recognized at the second half of the year versus first. But again, a caution there’s a lot of uncertainty around that number, just given what we’re seeing in the shipping transition, shipping market.

Joseph Osha:

Hello. Thank you. Just for the record, I want to state I’m completely in agreement with your position on the Chinese supply chain. Just want to state that upfront. I’ve got two questions. First, just wondering how your EPC partners are doing in terms outside of your product area, cables, labor, racking all that, what you’re hearing from them in terms of the ability to get projects completed. And then my other question relates to your plans for expansion, you talked about working with other parties, but you’ve maintained a very quick clean balance sheet. I’m wondering with this much high quality backlog, whether we might see you maybe potentially look at levering the balance sheet in order to continue to drive the manufacturing expansion. Thank you.

Alex Bradley:

Yes. Because it relates to expansion. I would say right now, by the end of the year, we’ll spend about $1 billion of the roughly $1.4 billion associated with the two new Series 7 plants and that lines up with our year end forecasted net cash balance about $1.2 billion at the midpoint of guidance. If you think about beyond that, the next year we have another 300 to 400 or so of CapEx associated with those plants, but you’re also going to have the first production coming from those plants. Plus you’ve got all the Series 6 products up and running, so the business should be cash generative next year. You’re right. We haven’t levered up the balance sheet. We do have the ability to potentially lever up with some debt against the India facilities. So we’ve been in discussions and I think we’ve disclosed the potential for leverage, but we sit at the corporate level, which would really be linked to the expansion in India actually around 500 million or so of capital capacity there pretty attractive terms. Going beyond that, I would say that we could add an incremental factory without stressing the balance sheet. Again, that 1.2, 1.3 is net. So the gross number is higher will be cash generative next year. And as we’ve come out of the systems business the working capital and volatility around the business decreases. Now beyond that, if we were to see opportunity to add significantly more capacity in the near term, as the potential for needing more capital, I think worry to do that right now our read is across debt converted equity to markets are pretty open receptive to capital. I’d also add that if you just look at the timeframe in which we would add capacity, even if we were to make a decision today, it’s going to be 24 months or so before we’ll be able to bring that capacity online. And the spend timing around the land, the building, the equipment is going to push out such that we have more time for the business generate cash as well. So I think right now as we stand we’re in a pretty good position, I don’t see us needing to access the capital markets, but if we were to do – the desire to do so, I believe those are open to us today.

Brian Lee:

Hey guys. Good afternoon. Thanks for taking the questions. A lot of moving parts here around some of the contractual adders. So I just want to make sure I’m not misconstruing it. When you said earlier that on that Slide 4 or 5 you’ve got 36 gigawatts of module shipments teed up for the next several years. And then you have the 12 gigawatt that you booked since the last call. What – I think you made a comment that the contract adders or the commodity adders and/or the technology adders were not applicable for certain percentage of those, is that – was I right in hearing that, that the 12 gigawatts that you booked since the last call could potentially have the three to six sets of adders, whereas the other 24 gigawatt, because those were sort of older contracts do not. And then just a quick question on the equipment vendors, anything you can elaborate there on in terms of lead times and where you might be seeing some of the most bottlenecks around some of your key equipment and tool sets needed for a capacity expansion. Thanks guys.

Brian Lee:

For delineating all that, that does clarify it a lot.

Brian Lee:

All right. Thanks guys.

Operator:

Good afternoon everyone and welcome to First Solar’s Fourth Quarter 2021 Earnings Call. This call is being webcast live on the Investors Section of 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. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon and thank you for joining us today. I would like to begin by expressing my gratitude to the entire First Solar team for their hard work and perseverance in a year where much of the solar manufacturing industry faced supply chain, logistics, cost, and pandemic-related challenges. Despite these dynamics, we have continued to scale our manufacturing capacity and adapt our business model in a constantly evolving market. Through our points of differentiation, which include our cad-tel thin-film module technology, a vertically integrated continuous manufacturing process, a strong balance sheet and a commitment to the principles of responsible solar, we have traded a growth-oriented business model, which we believe positions us to be successful over the long term. While Alex will provide a more comprehensive overview of our 2021 financial results, I would like to highlight that our full year EPS results of $4.38 per diluted share came in above the midpoint or guidance range we provided at this time during our third quarter earnings call. Of note this EPS result, despite an unprecedented challenging freight environment is also solidly within the original guidance range we provided last February. Beginning on slide three, I’ll highlight some of our key 2021 accomplishments, which we believe positions us for sustainable growth. To begin, we had an excellent year from a commercial perspective securing a record 17.5 gigawatts of net bookings in 2021, more than double our prior annual record. This momentum has carried into 2022 with 4.8 gigawatts of net bookings year today, which brings our total since the previous earnings calls to 11.8 gigawatts. As we secure this very significant volume for delivery into the future, we have been employing a contracting strategy which enables our customers to benefit from the evolution of our product and technology platform, while also partially de-risking our position around sales freight [phonetic]. I will discuss this approach later in the call. We produced 7.9 gigawatts in 2021, delivering against our near-term commitments, despite pandemic-related challenges. Moreover, we reduced our cost per watt produced water by 6% between the end of 2020 and 2021, despite inflationary pressures, rising commodity costs, and as a result of the COVID-19, the inability to implement as planned several module cost reduction program. Expansion has been an important thing in 2021. As we set the foundation to reach approximately 16 gigawatts of capacity in 2024, we added our sixth Series 6 factory, our second factory in Malaysia in early 2021, announced plans for new factories to produce our next generation of solar panels, which we are calling Series 7 in India and Ohio. As a reminder, the two Series 7 factories are expected to come online in 2023 and combined with combining with their benefit of locating supply near to demand, reducing the cost of sales freight, are expected to increase gross profit per watt by approximately $0.01 to $0.03 relative to our existing Series 6 fleets. On the technology front, we increased our top Series 6 production bin to 465 watts, which represents a 21% [phonetic] increase year-over-year as in line with our guidance provided last February. We reduced our 30-year warranted power output degradation rate from 0.5% to 0.3% per year. This meaningful improvement can result in the module yield we’ll have to 4.4% more energy on a lifecycle basis. And finally, we completed the sale of our US project development and North American O&M businesses. In summary, each of these achievements are the result of our intent to focus on our greatest competitive advantage, which includes our differentiated technology and manufacturing process. Turning to Slide 4, I will next discuss our most recent shipments and bookings in greater detail. We shipped approximately 2.1 gigawatts and 7.7 gigawatts for the fourth quarter and full year 2021 respectively, which was within but towards the lower end of our guidance range that we provided during the Q3 earnings call. As a reminder, we generally define shipment as when the delivery process to a customer commences and the module leaves one of our facilities, whereas revenue recognition or volume sold occurs this transfer of control of the modules to the customer, which is commonly upon the arrival at the destination port of the project size. Now, extended transit time due to container availability constraints contributed to our full year 2021 shipments being towards the lower end of our guidance range. The global freight market continues to experience record levels of scheduled delays and reliability issues, which has worsened since the previous earnings call. Due these challenges, we ended the year with 1.2 gigawatts of inventory on hand and 675 megawatts of shipments in transit not recognized as revenue. While the volume in transit declined quarter-over-quarter, it was meaningfully above the trailing 12-quarter average. Several logistic challenges trended unfavorably in Q4. Firstly, total transit times for transoceanic freight increased by a factor of weeks between Q3 and Q4 reaching levels nearly double historic norms. Secondly, congestion continues to be challenging at US ports, which are further exasperated in advance of the holiday season. Thirdly, reliability was a significant issue as three in 10 planned sailings were canceled around the turn of the year. Finally, over the road trucking is constrained from a capacity perspective with load to truck ratios at the highest level in several years. In summary, we are experiencing a two-front impact related to freight in terms of both higher costs and worst carrier performance. With regard to bookings, momentum has accelerated with 11.8 gigawatts of net bookings since our November earnings call. We continue to see an increase in multi-year module sale agreements, driven by our customers need for certainty in terms of the technology they’re investing in and the suppliers’ integrity and ethics. Representative of this, we have executed an agreement with our highly valued long-term partner SB Energy to supply 1.5 gigawatts of deployment in projects in 2023, 2024, and 2025. As we are accounting for shipments of approximately 2.1 gigawatts during the fourth quarter, our future expected shipments which extended into 2025 are 26.2 gigawatts, including our year-to-date bookings, they’re sold out for 2022 and has 10.7 gigawatts, 3.4 gigawatts, and 2.4 gigawatts for planned deliveries in 2023, 2024, and 2025 respectively. Next, I would like to provide an update on our project development and O&M platform in Japan. Today, our remaining offerings outside of our core module business includes project development in Japan, O&M outside of North America, and our continued ownership of certain power generating assets. Of these remaining businesses, our Japan platform is the most prominent in terms of perspective, scale and profitability. In late 2021, we received an unsolicited offer to acquire our Japan project development in O&M platform. We believe that potential purchase stretch strategy to scale a leading solar platform in Japan, coupled with the participation of complementary asset classes could unlock the full potential of our Japan platform. Accordingly, we are in advanced stage negotiations to sell our Japan project element and O&M platform. While there is no certainty that we will execute a definitive agreement with this counterparty, we believe that the contemplated transaction value is compelling, though, if we do not complete this transaction, we expect to either continue our approach of selling down our contracts or projects over time, or consider an alternative buyer for the platform. And I’ll turn the call over Alex, who will discuss our Q4 and full year 2020 results. Alex?

Mark Widmar:

Thank you, Alex. Turning to slide seven, I would like to begin by providing an update on our CuRe program. Over five years ago, we announced the acceleration of our Series 6 transition, which transformed our manufacturing process and significantly increased our module wattage. While the outcome of the Series 6 program has been a great success, as reflected by our record 22 gigawatt backlog as of the end of 2021, it is easy to lose sight of the initial challenges we faced when scaling high volume manufacturing with respect to module wattage, throughput and manufacturing yield. Through persistence, resilience and ingenuity, our manufacturing associates methodically resolved these challenges, enabling Series 6 to be the success as is today. Looking forward, CuRe represents an anticipated enhancement to our module performance, which is expected to increase efficiency and lifecycle energy. On the November earnings call, we indicated that we had demonstrated CuRe’s for performance entitlements in a lab setting and are working to realize the entitlement in high volume manufacturing conditions. As a result, we have revised our integration schedule to lead line implementation by the end of Q1 2022 with fleet-wide replication timing to be determined upon completion of the lead line. Since the previous earnings call, we have conducted a series of CuRe runs on high volume production lines in Ohio. And while the trends are for improving module wattage and degradation appear favorable, we are still working to realize the full performance entitlement in high volume manufacturing conditions. Over the coming weeks, we intend to conduct further testing, which we believe will informed our views on lead line implementation timing. Again, this lead line implementation timing will in turn inform fleet-wide replication timing. As highlighted on our Q2 2021 earnings call, our technology team continues to create new optionality in our technology roadmap. This optionality enables us to partially mitigate the effects of CuRe delays through the enhancement of our current Series 6 technology with our top production bin reaching 465 watts at our Ohio and Malaysia factories. In addition to this improved efficiency and module wattage, Series 6 now has a significantly improved long-term degradation rate. Using the improvement metrology to measure degradation at our test sites, and further validated by third-party analytic methods and customer site data, the current Series 6 platform now has a 30-year warranted power output degradation rate of 0.3% per year, which is 40% below our previous warranted and represents a potential 4.4 increase in life cycle energy. While the improved Series 6 nameplate wattage allows us to achieve our targeted exiting 2021, with a top production bin of 460 to 465 watts, the expected overall lifetime energy performance of the current Series 6 program remains under that of CuRe, primarily due to differences in warranted degradation rate and temperature coefficient. That said, looking into 2022, we believe there is a path for Series 6 module to increase the top production bin to 470 watts with an upside potential of 475 watts exiting the year. Furthermore, we are also working on our Series 6 modules, under the current program, to achieve a temperature coefficient similar to what is expected under our CuRe program. I’ll discuss additional optionality in our technology roadmap, including bifaciality and opportunities to drive to higher levels of efficiency later in the call. While CuRe implementation has been delayed, the significant improvements in efficiency and degradation of Series 6 has been beneficial to more closely meet our customers’ expectations. In connection with our CuRe obligations this year, as discussed on our November earnings call, we have either mandate or in an advanced stage negotiation to amend certain customer contracts utilizing CuRe technology by substituting our enhanced Series 6 product. We expect these amendments to impact 2022 revenue and gross margin by approximately $60 million, which is reflected in our guidance. Note, we are still working to finalize certain CuRe-related contract amendments, relative to our contracted backlog disclosure, approximately 40% of the 60 million is in our contracted backlog disclosure as of December 31, 2021. The balance will be reflected once the remaining contract amendments are completed. These amendments coupled with the existing and forecasted improvements to our current Series 6 program related to efficiency, module wattage degradation rate, and temperature coefficient, as well as other potential enhancements under our technology roadmap, which I will discuss momentarily, have reduced the requirements to implement our CuRe program by a particular deadline. Looking into 2022, we are pleased to enter the year with a record backlog and a growth plan well underway with capacity expansions in the US and India. However, 2022 is expected to be a challenging year from an earnings standpoint, both due to external factors and the near-term impact of factory startup costs associated with our growth plans. The most significant driver impacting the year is the freight market. Ocean freight costs for contracted volumes have risen 200% to 300% from pre-pedantic levels. With our recently concluded carrier negotiations, we expect our 2022 contracted freight rates to increase by more than 100% year-over-year. This compares to a pre pandemic historic annual percentage increase in the mid-to-upper single digits. At the same time, transit times have significantly increased and reliability and availability have significantly worsened, pushing more volume into a higher price spot market. Despite record profitability across the shipping industry, this situation currently shows no sign of improving in 2022. We increasingly are monitoring the growing calls for accountability. In particular, from Georgia Senator Warnock, who has demanded an investigation into the apparent price gouging of ocean carriers. We expect sales freight for 2022 to increase to approximately $0.05 a lot. This is a combination of contracting and premium rates. Year-on-year, we expect a better mix of contracts and premium rates but with the substantial increase in contract rates, we expect sales freight costs to increase by approximately $200 million to $240 million year-on-year. Note, our anticipated 2022 shipments were largely booked prior to the shocking increase in freight rates. Relative to our expectations at the time of the negotiation, the module ASP freight rates have more than doubled. Externally, there have been a number of events that have adversely impacted our module cost reduction roadmap. Firstly, the aforementioned freight market disruption has resulted in higher shipment costs for inbound raw materials. Secondly, the increase in inflation and commodities has both directly and indirectly affected our bill of materials and costs of production. The cost of aluminum, which has increased over 40% between the start and end of 2021, has been a strong headwind against our module costs. We have partially offset this headwind by implementing our Series 6 Plus at our Malaysia and US factories, which reduced the aluminum content of our frames by 10%. Thirdly, COVID-19 constraints including travel quarantine restrictions for both First Solar associates and third-party equipment installers have impacted the timing of our Series 6 Plus and throughput upgrades in Vietnam. While we are expecting to see a loosening of travel restrictions this year, this uncertainty present ongoing risks to the timing of upgrades at our labs factory in Vietnam to Series 6 Plus, which is expected to be completed in early Q2. COVID-related constraints has also delayed the fleet rollout of our glass optimization program. As mentioned previously, our 2021 cost per watt declined by 6% versus our target of 11%. The shortfall reflective of the items noted above resulted in us missing our cost per watt target reduction by approximately $0.01 per watt. While we expect to continue to improve our cost per watt in 2022, we will not be able to offset a number of the headwinds experienced in 2021. And therefore, our module costs will be higher than our roadmap by approximately $0.01 per watt. This expected to negatively impact 2022 gross margin by approximately $100 million. While, there are better sources for expert perspectives on the most recent activities in Ukraine and Russia, and the resulting invocation on geopolitics, from our perspective, we are watching closely the tragic events unfold. As of today, our supply chain has not been impacted by the crisis and we have no current tier one suppliers in the conflict area. It is reasonable to anticipate natural volatility and various supply markets such as metals or fuel, should the conflict continue to escalate. We will continue to monitor this situation daily. Internally, the current limitation delays and the expected module wattage improvements will adversely impact our expected cost per watt reductions. And finally, capacity growth decisions made in 2021 will provide long-term benefits in 2023 and beyond, but provide a headwind to the 2022 P&L starts due to startup expenses of $85 million to $90 million. We will continue to navigate these headwinds with a focus on the future. As we invest in realizing the full value of our differentiated thin film technology, this pivotal year will evolve around continuing significant investments in R&D, new products, manufacturing expansion, and employing new contracting strategies, all of which we believe will set the stage for sustained growth in 2023a And beyond. As relates to R&D, our team has been cultivating optionality and our roadmap across energy attributes, including efficiency, degradation, temperature coefficient, and bifaciality, along with product attributes, including Series 7. More specifically, on the Q2 2021 earnings call, we highlighted that we are deploying prototypes of early stage bifacial cad-tel modules at our test facility and we’re pleased with the initial results. Since then, we have continued to run performance tests on both our current and CuRe device platforms, and has gathered more field data, with the results implying the potential for an increase in specific energy. Adding bifaciality on cad-tel adds to the well-understood and valued temperature coefficient, spectral response, and partial shading and long-term degradation energy advantages. With a mid-term target of a 490 watt bifacial module, we’re working diligently to commercialize this technology across our future platforms. We believe the commercial and financial perspective, prospects of bifacial cad-tel are compelling due to the anticipated higher energy yield with limited CapEx or retooling required in order to integrate a transparent back contact across the fleet. Turning to Slide 8, as it relates to expansion, construction of our Series 7 factories is underway and the schedules are on track, with the US factory expected to commence initial production in the first half of 2023 and the India factory by the end of 2023. Once scaled, these factories are expected to lead the fleet in terms of module wattage, efficiency and cost per watt. With a mid-term goal of 570 watt by monofacial Series 7 module, we see the potential for meaningful improvement in our module performance. As we significantly increase our nameplate capacity, we believe this anticipated growth when balanced with liquidity and profitability will drive contribution margin expansion, given our operating expense cost structure is 80% to 90% fixed. As a reflection of this expansion roadmap and continued optimization of the existing Series 6 fleet, we have summarized our expected exit nameplate capacity in production for 2022, 2023, and 2024 on Slide 9. As it relates to our contracting strategy, a feature of our newer framework agreements is the customers entering into a contract today can benefit from the potential realization of our technology roadmap. For approximately 7.3 gigawatts of bookings secured prior to the end of the calendar year, we’ve structured the ASP and product expectations on a baseline wattage and energy performance roadmap without the full anticipated benefits of our technology roadmap. To the extent, we realized future module technology improvements including new product design and energy enhancements beyond what is specified in the baseline agreement, the incremental value is expected to result in a corresponding increase ASP. Our ability to contract in this manner provides our customers with clarity of pricing, product availability and delivery timing enabling them to underwrite PPAs from position of strength, with lower risk to the expected project returns. From our perspective, there is also strategic rationale to contract in this manner, as it provides us confidence in our ability to sell through our expected supply and provides visibility into an expected profit per watt with the potential for meaningful upside to the extent we realize these anticipated technology improvements. This framework allows us to understand the price certainty, the value of our investments across different product enhancements. Based on these potential technology improvements, there’re approximately 7.3 gigawatts of contracted module volumes as of December 31, 2021, such adjustments if realized could result in additional revenue of up to 22 billion, majority of which would be recognized in 2023. Note this contracting approach has been incorporated in our 2022 bookings year-to-date. From a sales freight contracting perspective, last year, we began employing module contract structures, which mitigate our exposure to sales freight. As we continue to look in two to four years into the future, these arrangements provide a balanced risk profile for us and our customers, where we are incentivized to minimize sales freight costs that generally provide a cap above which customers are obligated to pay. We started employing these structures in Q2 2021 and approximately one-third of our expected 2022 volume includes the provisions. In 2023 and beyond, we anticipate a significant majority of volume will include these types of provisions. Across our contracted backlog, these contracts provide greater clarity into an expected gross profit per watt, thus providing freight relief through a hiring ASP, if rates remain above pre-pandemic levels. In addition to our contracting approach, our expansion strategy, including our third Ohio plants and our new India plant are expected to further de-risk our exposure to transoceanic freight costs by bringing manufacturing closer to demand. At the factory scale, our production mix exposed to transoceanic freight risk is expected to decrease by approximately 30 percentage points between 2022 and 2024. Overall, from a pricing perspective, the strong demand we are witnessing for our differentiated cad-tel module has enabled us to secure 10.7 gigawatts of bookings for planned deliveries in 2023, at a baseline ASP that is only $0.003 below our planned deliveries in 2022. It is important to note that ASP is essentially composed of two components, the module plus sale freight. The baseline ASP generally assumes sales freight will be approximately $0.025 per watt. To the extent that the actual sales freight is above the baseline, the ASP will increase to cover most of, if not all of, the incremental sales freight. When including this variable pricing adjustment, and assuming 2022 sales freight environment, we expect our 2023 sales freight adjusted ASP to be approximately $0.01 higher than 2022 on a like basis. In addition, as we secure the significant volume for delivery in 2023, we have been employing a contracting strategy which enables our customers to benefit from the evolution of our technology and product platform. Realizing the entirety of the benefit of this platform will increase our baseline ‘23 ASP by up to $0.02 cents a lot. Turning to Slide 10, we continue to see active customer engagement and high levels of interest in both individual projects, as well as a multi-year and multi-gigawatt agreements across key markets in the United States and India. Our total bookings opportunities of 53.6 gigawatts remain very robust, with 27.7 gigawatts in the mid to late stage customer engagement. This opportunity set coupled with our contracted backlog gives us confident as we continue scaling our manufacturing capacity. Incrementally we continue to evaluate the potential for future capacity expansion. As referenced on the Q3 earnings call, we have started to engage with certain suppliers to ensure we have line of sight on critical path tools for further expansion. We believe strong demand for our cad-tel modules, a dynamic technology roadmap, a strong balance sheet, and largely fixed operating expense cost structure are each catalyst, as we evaluate expansion. While this potential expansion may be in the US, India or beyond, we are seeking clarity on domestic solar policies to ensure such expansion is well positioned. Note, we have made no such decision at this time and any capacity expansions are unlikely to contribute to our 2023 production plan. I’ll turn the call back over to Alex who will discuss the financial outlook and provide 2022 guidance.

Operator:

[Operator Instructions] Our first question is from Philip Shen with ROTH Capital Partners.

Mark Widmar:

Alright, so, Phil, I guess, on the pricing, there’s a little bit of potential pricing upside in 2022, but not overly significant to the extent that the sales, there are about 30% of the volume we have in 2022, has some sales rate adjustments, which will appropriately take -- comply with the obligations under the contract and, therefore, adjust if the cost is above the capital, which we agree to, so that could impact it. If we are able to, for example, improve the temp coefficient on our current product, then there’s potentially some opportunity that can be monetized in 2022 but there’s not a significant increase in ASP opportunities off of what you see. And I think the contracted backlog that will show up in the K is going to be somewhere right around I think $0.27 or something like that. And that relates to the 22 gigawatts or so that we do have contracted. As you go into 2023, I will take that, look, I what I said in the call is that, essentially, the ASPs are relatively flat; I think we’re down about three tenths of a cent or something like that in ‘23 relative to ‘22. But there’s about $0.03 of adjustment, there’s a penny or a little bit north of a penny on the sales rate, I want to make sure that’s understood. Again, our pricing includes not only the module but the delivery of the module, so if you think about what our pricing or net pricing is today, at least for the module, you take cost $0.27 or so which is in the K at the average, and you pull $0.05 out of that. So that effectively says that our net module pricing is about $0.22. If you do that same analysis for the revised contracting structure that we have, you would take the $0.27 and back off about $0.025, so you’re going to see an increase of ASP just from that structure. There’s a potential of $0.025 of higher ASP monetization in 2023, than we have in 2022 because of how we structured the contract. Now, only about 70 or so percent of the contracts in 2023 have that structure, all of the bookings that we’ve done, that whole 12 gigawatts that we just referenced, as an example, have a modification formula actively embedded in that or a customer may accept export type of pricing, therefore, we don’t take the freight risk, and they’re responsible for it as an example. So, there’s opportunities, if you take the $0.27 and if you include the sales freight, and if you include the price adjusters for the technology, which could be by [indiscernible] could be higher bid and so on, that you could see significant increases in ‘23 over ‘22. You can do the math, you can sort of make your own assumptions, does it get into the 30s or not, there’s the potential to start pushing upwards of that. But again, depending on how we structured the risk profile on the sales freight, you can see individual opportunities that will have three handles on them for various reasons and how we structure and how we contract it. As it relates to expected margin, I can’t give you the absolute numbers on that but what I can say is that, there’s upward opportunity in ASPs based on what I referenced. Alex indicated that will continue, we just took 6% of cost per watt down in 2021 over 2020 and then there’s other you single digit types of opportunity of reducing ‘22 over ‘21. So if you just do your math, carry it forward, you can see that there is still a trajectory. Even in the environment that we’re dealing with right now that is very challenging, there’s a trajectory that can still drive to a lower cost per watt. So you can do the margin around in terms of what is the expected margin is by doing the math and how we’ve described it during the call on ASP as well as the cost side. On the comment about Digi that we’ve been saying for a while now that we are looking at tandem structures and high efficiency modules that drive an opportunity to expand there are traditionally utility scale segment of the market which we currently serve. As we think through that roadmap and that product evolution, then clearly it does open a Digi [indiscernible] type of opportunity that could enable an entitlement of higher ASPs. But Phil, as you know, I mean, we are on a path to get 16 gigawatts. I mean, if we’re dealing, let’s say, 500 megawatts, maybe even a gigawatt, yes, it’s a great market, we want to participate, we’ve got some great services, we’ve had some conversations in that regard, but still going to be, relatively small percentage of the overall business.

Operator:

Thank you. Our next question is from Joseph Osha with Guggenheim Partners.

Mark Widmar:

Yeah. On the other policy, just in general, around 201 and clearly, we were disappointed with the bifacial exemption that was provided. The reality is, for me, the way I look at this, the model has many different attributes but every module basically takes photons and electrons. And how you choose to do that, we talk about our attributes a lot, we talk about our spectral response and our ability to be damaged as relates to moisture in the air and humidity. We talk about our temperature coefficient, we talk about our shading response as an example. Those are all attributes, which take advantage of your technology beyond just the labeled watts and turning photons into electrons and bifaciality is nothing more than that. It is just another attribute that allows for additional energy generated from a module that takes photons and makes electrons. So there to me is no common sense rational reason why bifacial modules would be exempt. It’d be no different than if somebody to any attribute, it could be long-term degradation, our long-term degradation where you could say that, if you have a long-term degradation rate that’s below x, then you’d be exempt from the 201 duties, which, to me wouldn’t make any sense, nor does the bifacial exemption in itself make any sense. As it relates to our customers, our customers, they value that the relationship with First Solar. They value our willingness to deliver and to honor our contracts and to stand by them in times they were challenged in right now. And that’s why we refer to our customers as partners, and we partner in times of when things are going well and when things are more are more challenging, right. We’re going to work together and we’ll find solutions that we can enable each other success. As we look to this is, again, a marathon, a long-term journey, of which we’re different front end as a world of electrification. And all that world of electrification starts by turning photons into electrons and we’ll do that better than anyone else and so our partners want to work with us. And so yes, there’s some policy angst, ebbs and flows, but nobody can look around the corner and say for certain that any of our competitors, again, vastly Chinese competitors will be able to stand by our partners through their journey, and the uncertainty of things that could happen. So it does play to our strengths. Just look at our -- we just booked 12 gigawatts. We have a mid-to late-stage pipeline of 27 gigawatts. After those 12 gigawatts were booked, we got to -- including early stage, we got 55 gigawatts, both of those pipeline metrics are up about 10 gigawatts from what we talked about during the last earnings call, and we just booked 12 gigawatts. So there’s lots of opportunities. I think our value proposition, our uniqueness, our technology, our growth plan, our expansion, being America’s solar company along the lines, Joe, what you’ve referenced means a lot in the market that we’re in right now. So I think it plays to our strengths. As relates to growth, what I meant to, we talked before about growth, we’ve got capacity expansion for two new factories, one here in Ohio and another in India. We mentioned that we are working to evaluate further expansion, and if this pipeline -- our backlog of bookings, and then pipeline of opportunities continues to grow, we get to a point where we’re going to need to start evaluating expansion beyond what we’ve already committed to, and is there another factory of 3 gigawatts or is there another two factories that could be 6 gigawatts to be determined, but it’s all driven often by fundamentals of demand in the marketplace, our relative position, and our ability to sell forward. So we’ll keep you updated. All we’re trying to do is to let people know that, hey, we’re working through that and we’re working very closely with our tool suppliers to enable that opportunity, if it were to come about.

Keith Stanley:

Hi. Thank you. First, just some clarifications on the 2022 guidance and appreciate the detail you’ve given. Much of the Japan and O&M [phonetic] business operations contribute to earnings for the year separate from the gain you’ve noted and I just want to confirm the year-end cash balance includes the planned sales.

Operator:

Perfect, thank you. And our next question is from J.B. Lowe with Citi.

Mark Widmar:

So on the ASP, the way we look at it, again, there’s about 30% of our contracts in 2022 that have some freight adjuster. Again, just to put it back in perspective, to look at where we were a year ago, in Q1 of 2021, sales freight we reported in our number was about $0.025. So we’ve gone from $0.025 in Q1 of last year to $0.05 a lot. So we didn’t really -- and we generally have assumed historically around $0.02 that’s kind of what our implied assumption is, that’s what it’s been historically and as we continue to drive lots up, it dilutes the average freight balance, it improved [indiscernible] a lot and everything else. So we saw this dramatic shift starts to happen in kind of Q2 of 2021, so we started modifying our contracts such that we weren’t carrying that entire freight risk. And so there’re adjusters, now not all of the benefits that just flow into ‘22, they flow -- they start to flow into a much higher percentage, about 70% or so. At ‘23, we’ll have freight adjuster and really everything forward from ‘23 will have some form of freight adjuster associated with them. So when you think about it, you got $0.05 as a headwind in this year’s results that you’re going to recover some nominal amount back from the customer and so you will see some adjustments to ASP as we progress throughout the year, maybe it ends up being about a penny and a half, somewhere -- or excuse me about a half a penny. So you’re going to see our ASP will trend up from what’s in our backlog right now as these sales rate adjusters are reflected for 2022 shipments. But we do that same math and looking how we structured our freight right, there’s about a penny and a half that will come through in 2023. So the year-on-year, when you look at apples-to-apples, the ASPs, because of that recovery on the sales rate, it is going to go up about a penny. So you’re -- thinking about your 27 this year is probably going to deploy you closer to 27.5, and then you got about a penny of that upside for that ASP going into 2023. Now, this all assumes that sales rates stays at $0.05, if it goes up to $0.06, well, then that adjuster is going to be higher, because I’m still only really caring about $0.025 of the total sales rate risk my customer is going to pay me and accompany me for anything above and beyond that. And then the other piece that will be accretive to ASP as we go into 2023 is we refer to them as these technology or platform adjusters, right. So we’ve contracted with customers, just to look at a baseline product, the baseline product, basically, is what we’re producing today, call it a 465 [phonetic] standard CuRe product. But we do anything about that, the bins get better. If the [indiscernible] gets better, the LTR gets better, it becomes bifacial, whatever it may be Series 7 will have a premium on it and that starts flowing into 2023, as well. So, all those become incremental to the ASP. And because -- while they’re structured contractually that way, we don’t have certainty out of the exact product that will be delivered, we can’t reflect it into our contracted backlog. Those will be realized over time and then you’ll see those benefits improve in contracted backlog. That’s the point we’re trying to make.

Ben Kallo :

Hi. Thanks for taking my question. Has any of this the freight costs doubling, has that changed any of your thoughts around doing long-term contracts, as you look out into ‘24? And can you talk to us about how you’re selling products from India? Is it more localized when you get out that far? And then my third question and final question is just can you talk to us about going to bifacial and how you make that decision and what it means on both ASP and a cost perspective? Thank you.

Operator:

Thank you, presenters. That’s all the time that we have for today. This concludes today’s conference. Thank you again for your participation and have a wonderful day. You may all disconnect.

Operator:

Good afternoon everyone and welcome to First Solar's Third Quarter 2021 Earnings Call. This call is being webcast live on the Investors Section of 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. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon and thank you for joining us today. Beginning on slide three, I would like to start by thanking the First Solar team for their dedication and continuing execution. Operationally, despite the challenging freight and COVID-19 environment, our associates continue to deliver on their commitments. In the third quarter, we produced over two gigawatts of modules and in October, we increased our top production bin to 465 watts, which represents a 19% glass area efficiency. In parallel, we started construction of the building of our third Ohio factory and began ordering equipment for our first factory in India. Commercially, we had a good quarter increasing our record year-to-date bookings to 10.5 gigawatts. From a financial perspective, while Q3 freight costs were higher than anticipated, our full year sales freight expectation is unchanged. Shipments, which we generally define as when the delivering process to a customer commences and the module leaves one of our factories, totaled 2.1 gigawatts in Q3, which was only modestly below our expectations. Despite this total shipment results, the global freight market continues to experience record levels of scheduled delays and reliability issues. As a result, approximately 820 megawatts of modules shipped, remained in transit at quarter end, nearly double that of the preceding four quarters and were therefore not recognized as revenue in the quarter. While we expect extended transit times to continue, we anticipate our in-transit volumes to improve in Q4 as a high percentage of our shipments are expected to come from our Perrysburg factory and US distribution centers. As a result, we iterate our full year 2021 EPS guidance. Turning now to slide four, I'll provide an update on our expansion plans. As it relates to our US expansion, we started construction in mid-August after successful groundbreaking ceremony, which included bipartisan representation from state and federal government including Secretary of Labor, Marty Walsh. As we continue this expansion journey, we're proud to be at the forefront of America's solar manufacturing, supporting domestic energy independence and creating good-paying middle-class jobs that will be here for years to come. Looking forward with a vertically integrated manufacturing process and a differentiated CadTel technology, we are uniquely positioned to expand our leadership role as the largest PV module manufacturer in the United States and support the nation's climate objectives. With construction underway and our schedule on target, we expect to commence initial production at the 3.3 gigawatt factory in the first half of 2023. In September, I had the privilege of meeting Prime Minister Modi in Washington D.C. to discuss India's long-term climate objectives and focus on energy independence and security, as well as opportunities for technology leadership in India. Through an ambitious target of 300 gigawatts of installed solar capacity by the end of this decade, paired with a holistic industrial and trade policy, India has created a supportive environment for companies seeking to manufacture renewable energy in country. We commend the Indian government for its leadership and believe that if every country were to take bold steps like India, our collective ability to achieve the targets within the Paris Agreement would be well within reach. With this backdrop in mind, we are excited to be expanding our manufacturing footprint into India. Overall, the site preparation is complete and we started to order equipment and the schedule is on track with the 3.3 gigawatt factory expected to commence initial production by the end of 2023. Turning to Slide 5. I'll now provide COVID-19, manufacturing, supply chain and cost updates. As a global company, we have demonstrated disciplined execution, agility and a steadfast commitment to health and safety throughout the pandemic. Reflective of this approach we have been able to maintain capacity utilization, excluding planned downtime of over 100%. Despite the challenging COVID-19 environment in Vietnam and Malaysia, our Vietnam-based manufacturing associates have been essential in the success by electing to remain on site in order to ensure manufacturing continuity. While this very challenging period of on-site quarantine ended in late October, we acknowledged our team's resiliency, ingenuity and incredible dedication to the company's mission. Through the strength of our global associates, we continue to execute source our bill of material strategically and navigate the current environment as reflected by the manufacturing performance metrics on Slide 5. While we've delivered against our near-term production commitments travel and other COVID-19 restrictions have added constraints on getting third-party equipment installers as well as our US-based associates into Malaysia and Vietnam to perform the planned product, throughput and efficiency upgrades. We have continued to work with relevant agencies to support this essential travel in a safe manner. However the timing of upgrading our last factory Vietnam to Series 6 Plus is now expected to be completed in Q2 of next year. While I will provide a holistic update on our CuRe program later in the call the aforementioned factors have contributed to impact the implementation timing in Malaysia and Vietnam. Consistent with our expectation as of a prior earnings call, the ocean freight market globally has remained challenging due to ongoing port congestion, limited container availability, historically poor schedule reliability, higher fuel costs and other events. While shipping rates have increased since the July call, we had accounted for this expectation in our previous full year sales rate guidance which remains unchanged. As highlighted on our prior earnings call we continue to partially mitigate the effects of higher sales rate per watt through implementation and module -- improvements in module efficiency implementation of Series 6 Plus, utilization of US distribution network and freight-sharing contractual arrangements with our customers which cover a portion of expected 2022 deliveries. Despite these mitigating factors the challenging freight environment has adversely impacted our financial results. And while we have been able to maintain our global -- our module gross margin guidance for 2021, we expect freight costs to remain at current elevated levels into 2022. I would next like to provide an update on our variable bill of material spend. Although spot prices for aluminum has continued to rise since the July earnings call, we have had a commodity swap contract in place which covers the majority of our US consumption through Q4. Going forward and for our domestic and international manufacturing sites, we have several strategies and process to reduce framing costs in the near to mid-term. Firstly, by differentiating the frame design and reducing cost of modules installed in the interior versus exterior of the array; secondly by optimizing the mounting interface of our next-generation module; and finally evaluating alternative materials for construction of our frame. From a glass perspective we have largely hedged this cost through long-term fixed price agreements with domestic suppliers that have volumetric pricing benefits as we achieve higher levels of production. While cost uncertainty remains for certain bill of material items, our targeted 3% cost per watt sold reduction including sales rate between where we ended 2020 and expect to end 2021 is unchanged from the prior earnings call. As we mentioned while sales rate remains at elevated in excess of pre-pandemic levels, we have accounted for this in our guidance update during the previous earnings call. Regarding our end-of-year cost per watt produced target, we expect to face challenges primarily due to COVID-related delays impacting the start-up of a new glass cover factory to support our Malaysia and Vietnam factories. Additionally, we expect higher adhesive costs due to supply chain disruptions in China and a mix shift of production to higher-cost exterior modules to support projects in high wind zones. As a result of these factors, our revised year-end cost per watt produce reduction target is 5%, when compared to the prior year. Given the majority of modules produced during the fourth quarter are expected to be recognized as revenue next year this cost per watt produced headwind is not expected to impact our 2021 P&L. In aggregate, despite these near-term cost pressures, our multiyear midterm targets to reduce Series 6 bill material costs by 20% to 25% remain on track. In the United States, there are a number of items in the mix as it relates to industrial policy, trade policy and importation. While the outcome of these items remain uncertain, we continue to believe the Biden/Harris administration has a unique opportunity to produce a comprehensive strategy for solar which could include a mix of manufacturing tax credits, an extension of the investment tax credit with the domestic content requirement and enforcement of responsible solar among other strategies. Through a long-term strategic approach to policy the administration has the opportunity to create an environment that not only helps secure America's sustainable energy future in a manner that reflects our country's values and principles, but also fosters innovation for the next generation of PV to be developed and manufactured in the United States. As it relates to trade policy, we continue to monitor developments related to the petition to extend Section 201 tariffs and to investigate whether certain solar manufacturers have circumvented antidumping and countervailing duties. As it relates to importation, we have repeatedly and unequivocally condemn the reported use of forced labor in the crystalline silicon PV supply chain. We continue to do so, as long as it remains an issue. During the previous earnings call we indicated that the issue necessitates swift and resolute action, but also emphasize that it should present an impetus for the United States and like-minded nations to separate their climate goals from the over-reliance on one country and one PV technology. No country should be forced to choose between fighting climate change and standing up for its principles such as, safeguarding human rights and securing this energy independence. While we acknowledge the challenges presented by the withhold release order issued by the U.S. Customs and Border Protection in June of this year, there are practical commercial solutions to reduce the risk of purchasing modules associated with forced labor and uncertain trade policy outcomes. For example, one of our peers has recently established a vertically integrated supply chain from polysilicon to module assembly outside of China without direct or indirect ties to Xinjiang. While this is a small step and only impacts a portion of the overall operation we believe it is a meaningful step in the right direction. Two essential attributes of PV power plants are their environmental benefits and their zero ongoing fuel consumption as compared to thermal generation. While the economic competitiveness of solar continues to drive an acceleration of global adoption many international markets including China rely on coal firepower for the majority of their electricity generation. Due to supply chain challenges and geopolitical factors, China is experiencing a coal shortage that has resulted in higher energy prices and government-mandated power restrictions against parts of the manufacturing sector. Given the majority of global polysilicon capacity is located in Mainland China higher coal costs mandated reductions in energy consumption and reduced operating capacity have further exacerbated the supply and demand imbalance in the polysilicon market, contributing to an ongoing increase in pricing for both polysilicon and solar modules. This coupled with the challenging freight environment has caused many Chinese-based manufacturers to prioritize availability of solar module supply to the local market where the major investors in utility-scale solar are the country's state-owned enterprises. This is yet another potent reminder of the risk of having climate goals tethered to supply chains that lead, a single nation in the PV technology and demonstrates the irony of America's clean energy transition currently being hindered by reliance on coal to produce crystalline silicon solar modules. Turning to slide 6, I'll next discuss our most recent bookings in greater detail. We had a good quarter with bookings of 1.5 gigawatts since the previous earnings call. After accounting for shipments of approximately 2.1 gigawatts during the third quarter, our future expected shipments which extended into 2024 are 16.5 gigawatts. Including our year-to-date bookings we are sold out for 2022 at 4.2 gigawatts of planned deliveries in 2023 and 0.3 gigawatts in 2024. While our energy quality and environmental advantages are all key differentiators, customers have been placing a premium on our vertically integrated manufacturing process, supply chain transparency and zero tolerance for the use of forced labor in our supply chain. We are seeing our value proposition drive interest in multiyear framework agreements. With a robust and several active negotiations with customers in the United States and India for multiyear and multi-gigawatt agreements, we are pleased with the robust demand for our CadTel technology. At the time of our previous earnings call, we had indicated the ASP across our volume for potential deliveries in 2023 was 1% lower than the volume to be shipped in 2022. Including our incremental bookings since the previous earnings call, our 2023 ASP is largely unchanged. In summary, we have seen a significant increase in the desire to work with First Solar due to our differentiated value proposition of more value with less work. While many of our crystalline silicon competitors have reportedly canceled deliveries have prioritized shipments into the domestic Chinese market and have openly requested price increases and delayed shipments we however continue to stand behind our contractual commitments. With this backdrop in mind, we are seeing bookings momentum with customers who value our technology advantages the benefits of domestically produced product and our responsible solar principles. Additionally as reflected on slide 7 our pipeline of future opportunities also remains robust. Our total bookings opportunities is 45 gigawatts with 21 gigawatts in mid to late-stage customer engagement. Note our capacity expansion in India and the related increase in available supply to meet projected domestic demand has increased our bookings opportunity in India to over 17 gigawatts, a 10 gigawatt increase since our Q2 earnings call. Before turning the call over to Alex I would like to provide an update on our technology road map. Looking forward, CuRe represents an anticipated enhancement to our module performance, which is expected to increase efficiency and reduce long-term degradation. On the April earnings call we indicated the CuRe lead line implementation was anticipated by Q4 of 2021 and fleet-wide by the end of Q1 2022. On the July call, we indicated CuRe implementation in Vietnam required international travel from third-party equipment installers as well as our US-based associates. Regarding Malaysia we were in the process of implementing the required CuRe upgrades but not all have been completed as of the end of the July call. In July through September COVID-19 cases began to significantly increase as the Delta variant spread and government restrictions were put in place in parts of Southeast Asia. As it relates to our CuRe development program, we have demonstrated the product's full performance entitlement in a lab setting and are currently working to translate this potential into high-volume production in Ohio. While this trend for improving module wattage and degradation appears favorable we are still working to realize the full performance entitlement in high-volume manufacturing conditions. We are continuing to refine our production parameters in order to bridge this gap relative to the program objectives for CuRe. As a result of the aforementioned challenges, our integration schedule is delayed and we have revised our integration schedule to the lead line implementation by the end of Q1 2022. Fleet-wide replication timing will be determined upon completion of implementation of the lead line and factory equipment upgrades required for CuRe. While CuRe has been delayed this presents a window of opportunity to leverage the optionality in our technology road map and demonstrate the resiliency of our vertically integrated manufacturing process. Through product enhancements to our current Series 6 technology we have increased our top production bin to 465 watts which represents a 19% glass area efficiency and produced over 125 megawatts with 460-watt modules during October. In addition to improved efficiency in module wattage, Series 6 is expected to have a significantly improved long-term degradation rate. Using improved metrology to measure degradation at our test sites and further validate by third-party analytical methods and customer site data, the current Series 6 platform is expected to have a 30-year degradation rate of 0.3% per year, which is 40% below our previous expectation. While the improved Series 6 nameplate wattage is in line with our target to exit 2021 with a top production bin of 460 to 465 watts, its energy performance including a slightly higher long-term degradation rate and higher temperature coefficient is below the expected performance of CuRe. In connection with our CuRe obligation starting in Q1 of next year, we have either amended or will endeavor to amend certain customer contracts utilizing CuRe technology by substituting our Enhanced Series 6 product. In connection with these customer contract amendments we may make certain price concessions. We currently estimate that the price concessions that we will potentially will make across the impact of customer contracts will not exceed approximately $100 million of 2022 revenue. Despite these challenges, we are encouraged by the promise of CuRe technology. Through the relentless focus and persistence of our manufacturing technology teams, we believe CuRe's performance on the manufacturing line will continue to improve. We will discuss the full year 2022 impacts during our fourth quarter earnings call. I'll now turn the call over to Alex, who will discuss our third quarter financial and 2021 guidance.

Operator:

[Operator Instructions] Your first question comes from the line of Philip Shen with ROTH Capital Partners.

Mark Widmar:

All right. Thanks Phil. I'll try to hit on all three of those. In terms of bookings -- and first of all what I'd like to say about the bookings if you look at our pipeline of opportunities that we highlighted in the presentation, we effectively -- if you look at our mid to late stage opportunities have doubled. I think our last quarter we were right around nine gigawatts now we're sitting at 21 gigawatts, so more than double that. And we've almost tripled the opportunities that we have in the US last quarter, we were six and change on the US for mid to late-stage in this quarter we're sitting north of 18. So I feel really good about the robustness and the opportunity for us. And then what's encouraging I somewhat indicated in my prepared remarks is that -- these are multiyear agreements, multi-gigawatt agreements a number of them are. And we are working a framework there that has construct that allows for optionality in our roadmap to make sure that we can be monetized. So we talked on the last call, for example, that we are looking to now enable bifaciality for CadTel. So to the extent that we do that then there's a predetermined value lever that is associated with that bifaciality and then it drives to accretion to the ASP. There's other components in there that are structured such that for domestic content requirements that may evolve with the ITC there's an associated value lever associated with that. So I'm really happy with the engagement that we're seeing right now, not only here in the U.S. but obviously in India. I mean to have a 17 gigawatts of opportunities in India already, just after only a little over a quarter or so since we've announced the factory expansion. It's really nice to see that level of engagement involvement and robustness that we have for our India factory. So we are encouraged. We are also -- I would say that the sales cycle customer engagement is probably a little bit longer, partly because we are looking multi-years out into the horizon and we're also trying to create the optionality and we're also trying to make sure we've got good visibility with all the various levers that could come into the mix, whether it's tariff, trade policies, whether it's industrial policies, we want to make sure that we have clarity around some of those levers as we start to enter into some of these contracts. Encouraged by the pricing. If you look at where we are and how pricing is firming up here in the U.S. And even what we're seeing in India is it becomes more of a domestic manufacturing market, we're encouraged by what we're seeing there as well. So all that, I would say, put us very positive and trending in the right direction. The reconciliation bill and in particular the manufacturing tax credit, the spirit and the intent of that has been to be additive. So the components are additive. We -- there has been some additional clarifying language that I believe was push forward in a manager's amendment yesterday to make sure there is clarity that it is additive. We believe its additive for the cell and module level at a minimum and is being evaluated whether potentially could be additive beyond that. So we're encouraged by that. We think the bill is structured in a way that it will provide the domestic capability that we need to ensure our self-reliance and long-term energy independence and security. So that's obviously moving in the right direction. That's still -- a long way still to go to get it all the way over the finish line, but the way it's constructed right now, we're very encouraged by them. And we think it will enable the long-term strategic objectives we need as a nation. Capacity expansion, Phil, we've already been working with our tool suppliers. We kind of got them on this six-month window. We've got Perrysburg expansion first and then six months later the India expansion and then we've already been working with them to think through another factory within six months after that, which would effectively say that we could bring another factory online sometime early 2024, depending on where it could be, it could be here in the U.S. it could be in India, it could be somewhere else. But we are trying to make sure that we have that forward visibility of what we're looking for in ensuring that that capability will be there if we made the decision to expand beyond our current commitments on capacity.

Operator:

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America.

Alex Bradley:

Hey, Julien. I’ll start on the shipment fee. So I would say, we're seeing poor congestion and general issues in the shipping market, be as bad today as we've seen them. So I don't see any improvement, if you look at the cost of sales rate we indicated for the quarter, that's still raised. I would say though that absent -- we still see some issues around blank sailings. In general, I have good confidence in our shipment numbers for the year. The delta comes a little bit in how much will that will be put through the P&L in terms of revenue recognized. So if you look at Q3, we managed to hit our expected shipment numbers, but we were low to the tune of somewhere around 300 to 400 megawatts in terms of the expected volume of revenue recognized and that's a function of transit times. So if you go back to pre-pandemic times, we would normally see from factory gate to revenue recognition about two months from product leaving our Asia factories. That's increased by about 50%. So we're seeing closer to 90 days now for product coming from Asia into the US. So I think from a volume shifts, I've got a lot of confidence. And if you think about where we are today effectively for product coming from Asia, if it hasn't left the factory already, it's not going to get to destination, if it's the US by the end of the year. So we have reasonable clarity there. But again, the timing of the rev rec is a little bit different. Now we do expect to catch up a little bit on the rev rec side in the fourth quarter, partly of the mix shift. So we see a little more expected volumes to be revenue recognized coming from either Perrysburg or our US distribution center. There's also a slight mix shift in terms of income terms in there as well. So good confidence on shipments still a bit of uncertainty on revenue recognition.

Alex Bradley:

Yeah. The other thing I'd add just on that is its pricing and also risk terms. So there is a view of changing risk profile around sales rate for instance that we're looking at in 2023 relative to historical contracts. So may not necessarily influence the overall ASP but does change the risk shift especially in the market we're seeing sales rate being a higher cost today.

Alex Bradley:

We're looking -- we're changing the allocation of risk and contracts so that we have sharing or pass-through of certain costs to the customers given the uncertainty around shipment.

Julien Dumoulin-Smith:

Excellent. Great to hear that. Congrats again. Speak soon.

Operator:

Your next question comes from the line of J.B. Lowe with Citi. Mr. Lowe, your line is open.

Alex Bradley:

Well. thank you.

Alex Bradley:

So, if you look through the various moving pieces across the year, so Mark in his prepared remarks mentioned that there'll be some impact from our timing around CuRe. There'll be some specific impact related to that timing. We also will see some impact from overall cost per watt. So, the factory upgrades not only impact CuRe, but impact overall cost per watt. Without them we have less watts. Therefore, we have less amortization of fixed costs going across the capacity we have. We've seen commodity price pressures. So, I think in the prepared remarks, we talked about our year-over-year cost watt produced being down about 5% versus our previous expectation of 9%. That's mostly bill of materials issues. On the long-term, we believe that gets resolved but we do see short-term pressure especially on the aluminum side. From a sales rate perspective, I would say that you're going to see the run rate you're seeing in the second half of this year most likely carry forward into next year. So, no sequential increase forecast today, but higher relative to pre-pandemic levels. If you look in 2022 overall as well, it's going to be the first year we don't have the US Systems business, although we will have some contribution from Japan on a company-wide gross margin level you're going to see some impact of that. And then I'd say the other piece you're going to see is the flip side of not having that US Systems business the strategic decision we made to exit was accompanied by a growth decision and you're going to see that come through later. But in 2022, we haven't yet got additional capacity in the US or in India online, but you are going to see the costs associated with that in terms of startup and ramp costs coming through. We talked on the last call about that being somewhere in the range of $60 million to $70 million per factory combined start-up and ramp and you'd see I think a little bit more than half of that total coming through in 2022 with the remainder coming in 2023. So, you're going to see some pressure on -- across the board in 2022. What I would say is if you then look forward and take that through into 2023, most of those short-term challenges don't tell the longer-term story. So, the CuRe delay that we talked about that impact will be felt from 2022 not in 2023. By 2023, you'll have over half of the ramp and start-up for the India and the US factory, which will have been spent sequentially year-on-year. Going 2022 to 2023, you're going to see a decrease in startup and ramp. As we talked about in the prepared remarks, ASPs right now we're seeing 2022 to 2023 are essentially flat in the backlog. And at the time when we have got pretty strong macro tailwinds right now on the bookings. We would expect sea cost per watt come down over the two years. From a volume produced and sold perspective, you're going to see volume come up as the factories come online in 2023. You're also going to see Series 7 come through. Right now we're not booking for that. As we mentioned on our last call, we expect to see about a $0.01 to $0.03 gross margin entitlement advantage associated with Series 7 relative to Series 6 and that's a benefit split across ASP cost per watt in sales rate. And then lastly on the sales rate side, you're going to see a benefit again in 2023 relative to 2022. I just talked about the contractual shift that we're making whereby we are capping effectively the amount of sales risk we take and the passing remainder through to customers. So, you are going to see that by virtue of a lot of those things an impact to gross margin in 2022 a lot of which will reverse out in 2023 and we'll give you more clarity and visibility into that when we give guidance in February.

Mark Widmar:

Yeah. So look, there's a lot of moving pieces in the CapEx right now for both of the factories and some positive and some challenging, right? And one of the unfortunate reality of sales rate or freight in general I should say, carries itself all the way through our tool set and delivering of those tool sets to our factories, right? So we are seeing some higher costs there. We've seen some other benefits relative to our original assumptions around the equipment cost that are more favorable. So, as we review, which we do every month the status of those two expansions and then the relative CapEx relative to the goals and also what we committed externally. The numbers are still lining up. The thing that could impact schedule per se would be long delayed in transit delivery schedule of the equipment set. And so we are trying to get ahead of that and we're trying to move that forward. And we've accommodated for some longer in-transit delivery times. But everything we see as of right now, we're still on target basically within the budget which we've communicated externally as well as the schedule when those factories will be up and operational.

Operator:

Your next question comes from the line of Ben Kallo with Baird.

Mark Widmar:

So first off, the way it's been structured right now, Ben, it's a refundable tax credit. So we don't have to have sufficient tax capacity to monetize it. To the extent we do have a tax liability then the credit would have offset that portion. And to the extent the credit was in excess of our tax liability then it would be a refundable credit that would be paid back to us by the US government. Ben, it's -- you can do the math, right? And the numbers can be pretty significant at $0.11 a watt. I mean you take $0.11 a watt across our US capacity, call it, three gigawatts for the US without the expansion. And then with the expansion you had another 3.3 gigawatts. So we're a little bit north of 6 gigawatts, in the way that it would work right now again with the module and the cell being additive, then you would be entitled to $0.11 for every watt of which we ship to produce and ship after beginning, let's say, it this way beginning January 1, 2022. So anything that we're producing right now would not be eligible for that even though it would potentially ship next year. But anything that we produce next year and ship then we would be entitled to a credit that as it currently is positioned would be a minimum of $0.11 a watt.

Mark Widmar:

So the one issue with us is that we're not seeing a lot of stuff moving. And the -- what's happening right now is unfortunately -- obviously not all of our customers are 100%. There are a couple which I do thank them very much. So the fact they're 100% committed to First Solar's technology but not all of them are. And they're getting reneged on or pushed out by our competitors. And so in some cases if they have a commitment with us on the books and the project discretely which that was associated with may be moving they're looking to take that volume and allocate it to another project that they're unable to get module supply for. So for us it's not much of an impact because nobody wants to give up the opportunity that they've got secured right now with us. And so what they're doing is taking delivery of modules and then using them in other projects. So I know others are seeing that impact. I know projects truly are slipping or getting pushed out. We're just not seeing much of that impact yet.

Operator:

Your next question comes from the line of Maheep Mandloi with Credit Suisse.

Alex Bradley:

Yes, this is Alex. I'll take quickly the -- we've guided to about $55 million to $70 million of gross margin assumption for Q4 associated with Japan assets.

Maheep Mandloi:

Thanks.

Operator:

Good afternoon, everyone, and welcome to the First Solar's Second Quarter 2021 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions]. I would now like to turn the call over to Mr. Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon, and thank you for joining us today. Beginning on Slide 3, I would like to start by thanking the First Solar team passion, continuing excellence and there are many achievements in the second quarter. Operationally, we have started site preparation with the recently announced 3.3 gigawatt factory in Ohio, which will further cement our position as the largest PV module manufacturer in the Western Hemisphere. Additionally, I'm pleased to announce that contingent upon permitting and approval of government incentives that are satisfactory to First Solar, we are intending to invest approximately $680 million to add 3.3 gigawatts of manufacturing capacity in India. These next-generation factories represent a significant leap forward in our technology road map and will produce our most competitively advantaged modules with an expected lower cost per watt and environmental footprint compared to our existing fleet. Commercially, market demand for our CdTe technology is at a record level. Seven months into the year, we have already booked 9 gigawatts, exceeding our prior annual record of 7.7 gigawatts in 2017. From a technology standpoint, our production lines are manufacturing record modules. To illustrate this point, samples produced during our regular production process were submitted for external verification and confirmed by the National Renewable Energy Laboratory at a world record 19.2% glass area efficiency for a CdTe module. For reference and in comparison to our previous aperture area record of 19% efficiency, our new record equates to a 19.7% aperture area efficiency. Additionally, our advanced research team has been creating new optionality in our R&D road map. For example, we recently deployed prototypes of early-stage bifacial modules at a test facility and are pleased with the initial results. In summary, the momentum we have cultivated, paired with an increased favorable policy environment, represents a compelling growth opportunity in the near to midterm. However, before discussing these opportunities, I will first provide near-term COVID-19 supply chain cost and market updates. Please turn to Slide 4. As a global company with the manufacturing operations in the United States, Malaysia and Vietnam, the health and safety of our associates our top priority, with a steadfast commitment to adhering to applicable COVID-19 protocols. As part of this effort, we are working with local governments to facilitate on-site testing and vaccination for our associates. I would also like to express immense gratitude to our Vietnam manufacturing associates who have to date elected to remain on site in order to maintain manufacturing continuity. While this clearly is a challenging time, we acknowledge your incredible resiliency, ingenuity and leadership to deliver your operational plan commitments. While we have been permitted and able to maintain manufacturing operations in Malaysia and Vietnam to date, the rise of COVID-19 cases and potential government and other restrictions present risks to our production, supply chain and technology implementation plans. As it relates to our CuRe program, the factory updates and tool implementations at our Vietnam site requires international travel from both third-party equipment installers as well as our U.S.-based associates. But we continue to work with relevant agencies in Vietnam who support this essential travel in a safe manner. Delays resulting from government and other COVID-related restrictions, or an increase in case rates may impact the timing of our cure transition in Vietnam. Despite this uncertainty, we continue to execute and navigate the current environment as reflected by the manufacturing performance metrics on Slide 4. As highlighted previously, the global shipping environment remains challenging due to port congestion, limited container availability, an increase in cancellation of shipments by logistic providers, scheduled reliability issues and other events. Since the April earnings call, shipping rates have continued to rise. And additionally, COVID-19 outbreaks and restrictions have caused disruptions in China and Southeast Asia, the impacts which have reverberated across the global logistics market. These challenges, coupled with strong global demand have led to a significant increase in the cost of transoceanic freight. We have partially mitigated the effects of higher shipping cost per watt through improvements in our module efficiency, implementation of Series 6 Plus, expansion of our distribution network strategy in the United States and forward contracts. However, we have seen and expect to continue to see for the remainder of 2021 adverse impacts on our financial results. For context, spot rates for routes between Asia and the United States have increased 200% to 300% from Q2 2020 to Q2 2021. Over this period, sales rate reduced our module segment gross margin by 9 percentage points in Q2 of 2021 or 3 percentage points higher year-on-year. We continue to facilitate -- anticipate near-term challenges, including elevated fuel cost, average vessel delays of 2 weeks and constrained container availability, impacting our ability to use space secured on vessels. Although these factors contribute to lower-than-anticipated shipments in Q2 and higher freight costs, we have a number of near-term and long-term strategies intended to improve our competitive position with regards to sales. Near term, we are working closely with our customers to limit our exposure to inflated sales freight costs. In certain situations, we have accommodated requests for delayed module shipments, which provide opportunities to mitigate higher freight costs. Given current vessel schedule reliability, we are adding scheduled buffers to better meet our customers' commitments and provide greater resiliency in our shipment plan. Average sales freight from Malaysia and Vietnam to our U.S. customers increased $0.05 per watt quarter-on-quarter, ending Q2 was approximately triple that of shipments from Ohio. Long term, this reinforces the strategic thesis for located in additional manufacturing capacity near to demand. Contractually, for certain new bookings, we have employed structures that mitigate sales freight costs in excess of prenegotiated levels. As we continue to secure bookings for deliveries 2 to 3 years in the future, this type of contractual arrangement will help derisk the expected value of our contracted backlog. I would next like to discuss the key components of our bill and material spend, approximately 2/3 of which is made up of glass and frame costs. From a glass perspective, we have largely hedged the cost through long-term fixed price agreements with domestic suppliers that have volumetric pricing benefits as we achieve higher levels of production. With regards to aluminum, in August of 2020, we entered into a commodity swap contract to hedge a portion of our U.S. cash flows for purchases of aluminum frames, which ends in Q4. While we anticipate some impacts of the hedge roll -- as the hedge rolls off, we intend to partially mitigate the cost per watt impact through reduced aluminum for module uses, firstly, by differentiating between interior and exterior modules; and secondly, by redesigning the frame. Finally, the cost of lumber, which is used for our shipping and packing process, was approximately 70% higher on an index basis in Q2 compared to the start of the year. This impacted our Q2 results by approximately $2 million. Since then, lumber costs have significantly declined. And as a result, we are currently not expected to impact our 2021 exit rate cost per watt target. In summary, while cost and uncertainties remain uncertain bill of material items, we are tracking to achieve a 9% cost per watt produced reduction between where we ended 2020 and expect to end 2021. Note while core production costs are largely on track, the 2 percentage point decrease in our year-over-year cost per watt reduction relative to the previous expectation is largely due to the effects of higher inbound freight costs for raw materials. On a cost per watt sold basis, due to the challenging near-term sales rate environment, our revised year-over-year reduction target is 3%. Note, as a reminder, sales rate is included in our cost of sales, whereas many of our module peers report sales rate as a separate operating expense. For comparison purposes, we encourage you to consider this fact with benchmarking our module gross margin percentages relative to our peers. Turning to Slide 5, I would like to provide some context on the ASP trajectory for the year. As a reminder, 2 years ago on the Q2 2019 earnings call, we indicated approximately 4 gigawatts of our 2021 module supply was booked or contracted subject to conditions precedent. In other words, a significant portion of the volumes sold this year had an ASP agreed to 2 years prior to model delivery. Heading into 2020 and into 2021, we were largely sold out of our available supply for the forward year. As a result, we've had limited exposure to the spot market. We believe there is a strong strategic rationale for forward contracting deliveries in this manner, which provides value for both First Solar and our customers. From our perspective, contracting for future deliveries provides us confidence in our ability to sell through our expected supply and visibility into an expected profit per watt in a TV market that is typically highly price competitive. From our customers' perspective, these arrangements provide value to clarity and certainty of pricing, product availability and delivery timing, enabling them to underwrite PPAs from a position of strength, with a lower risk to their expected project returns. Being able to provide the certainty to both buyer and seller is a strategic differentiator for First Solar. From a U.S. policy perspective, both near and long-term pricing for all solar modules, is also impacted by uncertainty over legislation related to force labor in China, tariffs, manufacturing tax credits, investment tax credits and other restrictions and incentives. Given the current lack of clarity over the form, structure and duration of potential policy changes, the near-term and long-term impacts of these on both demand and pricing also remain uncertain. Moreover, this lack of clarity needs to be balanced with the significant capacity expansions announced by our competitors. From First Solar's perspective, we aim to continue to work with capable, well-financed counterparties that have high certainty in the quality and execution of the projects. We also look to establish and maintain deep relationships and partnerships with our customers, delivering solutions at a fair pricing level that meets their needs and also enables attractive returns for First Solar relative to our expected future cost per watt. At the time of the previous earnings call, we indicated that the ASP across the volume of potential deliveries in 2022 was 11% lower than the volume to be shipped in 2021. Including our incremental bookings since the previous earnings call, the year-on-year decline is largely unchanged. Looking into 2023, we are very pleased with the demand and pricing we are seeing for our cad tel modules as we continue to drive to higher wattage and efficiency levels. Although there remains significant uncontracted volume to be booked, the ASP across the contracted volume for planned deliveries in 2023 is only 1% lower than that volume planned for 2022. Note, while we have yet to commence the sales process for our next-generation PV modules to be produced by our recently announced factories, they are expected to be ASP advantages to their anticipated higher efficiency and superior balance of system cost per watt profile. In summary, as we have seen a significant increase in desire to work with First Solar due to our demonstrated value proposition. While pricing negotiations in the market remain competitive, we continue to secure volume with customers that value our points of, with the potential for ASP catalysts in the future. Relative to this objective, we are very pleased with our record year-to-date net bookings of 9 gigawatts, which includes 4.1 gigawatts since the April's earnings call. After accounting for shipments of approximately 1.8 gigawatts during the second quarter, our future expected shipments would extend into 2024 or 17.2 gigawatts. Including our year-to-date bookings, we are largely sold out for 2021 and 2022, have 3.4 gigawatts of planned deliveries in 2023 and 4 and 5 gigawatts in 2024. This long-term demand further supports the investment thesis behind our third Ohio factory and our first factory in India. Additionally, and as reflected on Slide 6, from an opportunities perspective, our pipeline of future opportunities also remains robust. Note, our capacity expansion in India, and the related increase in available supply to meet projected domestic demand, expands our booking opportunities in the country. And accordingly, our potential bookings in India exceeds 7 gigawatts. We'd also like to take the opportunity to address the reported use of force labor in the crystalline silicon PV manufacturing industry, which has been highlighted by the recent withhold and release order issued by the U.S. Custom and Border Protection; the Xinjiang Supply Chain Business Advisory from the U.S. government and the Weaver forced Labor Perfection Act which passed the U.S. Senate with unanimous consent; an investigation by the United Kingdom and other countries in the EU. Climate change is among the most pressing issues facing society today. And fortunately, the challenges of decarbonization of the global electric mix can largely be addressed with commercially available technologies, including solar, wind, energy storage and green hydrogen. Unfortunately, the crystalline silicon supply chain is tainted by the purported use of forced labor and human rights abuses in China, which necessitates urgent action. However, it must be understood that our global collective response to forced labor does not need conflict with a long-term global climate objectives. While there are commercial solutions to ensure supply chain continuity, we've acknowledged the near-term supply challenges presented by the withholding release issue by the U.S. Customs and Border Protection. These challenges are exacerbated by the overly complex and opaque nature of the crystalline silicon manufacturing process. While the issue of force labor represents an urgent ethical imperative that must be addressed, it also presents a strategic opportunity to drive change and an opportunity for the United States and like-minded nations to achieve energy security and technological independence through the promotion of a PV domestic manufacturing industry. Relative to this, we strongly support the proposed Solar Energy Manufacturing in America Act, which was introduced by Georgia Senator, Jon Ossoff, and co-sponsored by Senators, Warnock, Bennett and Stabenow. We believe that is inactive, it will help accelerate the transition to clean energy using domestically produced technology, support American energy independence and create high-quality manufacturing jobs. By creating tax incentives for vertically integrated manufacturers and for each step of the crystalline supply chain, we can establish a level playing field where all PV technologies compete on their own merits and establish a domestic capacity to support America's climate objective. We believe the Biden-Harris administration has a unique opportunity to adopt a long-term industry policy for solar, which could include a mix of manufacturing tax credits and extension of the investment tax credit with a domestic content requirement among other strategies. Through a long-term strategic approach to policy, the administration has an opportunity to create an environment that fosters innovation for next generation of PV. While legislative outcome for the U.S. infrastructure in solar remains uncertain, we are broadly encouraged by the legislative sentiment and the willingness to support U.S. PV manufacturing to enable energy independence, security and climate global imperatives. Turning to Slide 7. Looking forward, we believe strong demand for Series 6, a compelling technology road map, a strong balance sheet and largely fixed operating expense cost structure and an increasingly favorable policy environment for domestic PV manufacturing in the United States and India are catalysts as we evaluate capacity expansion. With respect to the United States, as announced in June, we are more than doubling our manufacturing capacity in the United States, adding 3.3 gigawatts at an implied CapEx per watt of approximately $0.20. This greenfield expansion financed by cash on hand represents an opportunity, unbound by the legacy Series 4 constraints to optimize each parameter of the factory and product design. Accordingly, this enables us to develop a new product at the intersection of efficiency, energy yield, optimized form factor, cost competitiveness and advantaged environmental attributes. Starting in 2023, this factory of the future is expected to commence production of our next-generation module, which is expected to lead the fleet in terms of efficiency, module wattage, cost per watt and environmental footprint. Our next-generation module building upon our CuRe program is expected to push boundaries of our cad tel platform in several ways. Firstly, in midterm, we anticipate this module can achieve efficiency in excess of 20% and with an optimized form factor enable module wattage in excess of our current midterm target. Secondly, we optimized the form factor anticipation to benefit balance of system cost per watt and consequently, module ASP. Thirdly, through an optimization of the module's mounting interface and an increase in automation, this factory is expected to achieve a lower cost per watt produced than our existing fleet, despite being located in a higher cost labor market. Finally, by locating this factory domestically, we reduced our reliance on transoceanic freight costs and anticipated reducing sales freight per watt in the -- for U.S. deliveries. Our third factory in Ohio is expected to commence commercial production in the first half of 2023, scale to over 3 gigawatts of nameplate capacity by the end of the year and 3.3 gigawatts in 2025. Internationally, we have been evaluating the expansion of our manufacturing presence in India. Our technology is uniquely advantaged in the market due to our temperature coefficient and spectral response advantages, which can result in higher energy per watt installed as compared to crystalline silicon due to the effects of heat and humidity. As we stated previously, we believe CuRe significantly increases our competitiveness against bifacial modules. The India PV market is predominantly monofacial due to generally low and additionally, the cost of bifacial systems exceeding the benefits of backside energy due to high capital costs, and the additional real estate needed for bifacial plants. However, given the expected lifetime energy benefit of our cure modules, we can achieve with no increase in balance of system costs or other project costs, we are well positioned to capture the value of CuRe in the India market. We also thought the steps India has taken to foster a healthy domestic PV manufacturing industry which includes a combination of federal and state incentives and national barriers. This includes, among others, a $600 million production-linked incentive scheme with preference given for vertically integrated PV manufacturers who produce modules with an advantaged temperature coefficient. In addition to domestic incentives, India announced a solar tariff policy starting in April 2022, which includes 25% and 40% duties on imported and modules, respectively. Through its strategic approach, India has combined its clean energy targets with effective trade and industrial policy designed to enable self-sufficient domestic manufacturing and true energy security. As previously indicated, the factors in evaluating the future capacity expansion include geographic proximity to solar demand where First Solar has an energy or competitive advantage and which could mitigate freight-related costs. Secondly, the ability to export cost competitively into other markets. Thirdly, cost-competitive labor, low energy costs and low real estate cost. Fourthly, a competitive supply changes for source of raw materials and components. And finally, domestic and international policies to ensure such expansion is well positioned. In summary, we believe India meets these criteria. With the strong demand for our cad tel technology, we are eager to grow our manufacturing capacity to meet this market demand. With our expansion in the United States and India and optimization of our existing fleet, we anticipate our nameplate manufacturing capacity will double to 16 gigawatts in 2024, with the new factories combining 2 to 3 gigawatts of production in 2023. Moving on to technology. There were several noteworthy accomplishments since the previous earnings call. Firstly, following the implementation of Series 6 Plus in our 2 factories in Ohio, we are now consistently producing 450-watt modules in Ohio and Malaysia, increasing our fleet-wide average watt per module to 4.49 for July month-to-date. Secondly, our commercial production lines are manufacturing record modules, as previously discussed. Finally, our CuRe product has been certified as meeting UL and IEC standards, representing an achievement of the robust quality, reliability and safety requirements. As we look to extend our advantages in the utility scale market, we recently deployed prototypes of early-stage bifacial cad tel modules at a test facility and are pleased with the initial results, demonstrating real-world bifaciality. While this is only early stage research, we believe there is a path to increase bifacial performance, which has the potential to improve upon our existing temperature coefficient, spectral response, partial shaving and long-term degradation energy advantages. As we've previously stated, we believe CuRe significantly increases our competitiveness against bifacial modules. By potentially unlocking cad tel bifacial capabilities, we have the opportunity to further improve our existing energy advantage and ground mountain applications. In the residential and C&I markets, we recognize the value of high efficiency aesthetically pleasing and domestically manufactured product. As stated previously, we continue to evaluate the prospects of leveraging the high band gap advantages of cad tel and a disruptive high-efficiency, low-cost tandem or multi-junction device. We strongly believe that a thin film semiconductor is essential to achieving the highest-performing tandem PV modules and that cad tel, which benefits from the many innovations of our technology road map and has a proven commercially scaled track record is ideally placed to enable this leap forward in high-performance modules. In the midterm, we believe there is a path to achieve a 25% efficient multi-junction PV module. As we seek to grow our presence and competitive position in the residential and C&I markets, we believe this type of module has the potential to be disruptive and provide us with a competitive edge. I'll now turn the call over to Alex, who will discuss our second quarter financial results and 2021 guidance.

Operator:

[Operator Instructions]. Our first question comes from the line of Philip Shen from ROTH Capital Partners.

Mark Widmar:

Yes, Phil. So I guess on -- so obviously, we've got to comply with all the requirements of what's going on in both those countries. And in some cases, there's -- and there has been over periods of time in Malaysia around movement control orders. And fortunately, we've been -- and Malaysia have been deemed to be essential. So that continues to allow us to operate and we continue to try to make sure we comply with all the local requirements. We've also, in both of our facilities, started the process already to get our associates vaccinated. So most of our associates in both of the facilities have received the first shot and we'd expect here in the near term, we'd be able to provide the second shot. So that's helping as well. Vietnam is the one that I would say that's trending more significantly, right? On a relative basis, you could look at the Vietnam historical number of cases and fatalities are being relatively low by most standards. But we've seen a pretty significant increase here over the last 6 weeks or so. So the government has made and imposed other requirements, including to the extent that you are going to continue to run your factory, there's a requirement to quarantine on site. So we have made for accommodations for our associates there to quarantine. And we've got a schedule which would be in place where we'd be able to rotate associates through over periods of times where the current staff would be quarantine for a period of time, then the new a number of assets would come in over time. So we have been able to manage, and the team has done a phenomenal job. And I alluded to that in my prepared remarks, they continue to hit their operational metrics. So as I sit here today, as we look across our supply chain, that's both in Malaysia and Vietnam and our own facilities, we're able to manage the current situation. However, if things continue to trend worse, then we'll have to assess and evaluate our ability to continue to run and operate. So it's clearly a challenging environment at which the team have been able to do an outstanding job to continue to operate and to hit our performance metrics. The -- as it relates to technology rollout, it's a little bit different situation because -- and we highlighted it in terms of Vietnam as it relates to our rollout of CuRe, our sequencing around CuRe would have been Ohio first then Malaysia and then Vietnam. We've already done some of the upgrades that would enable the CuRe product to be released in Malaysia when we started , we have some of the upgrades already positioned to enable CuRe when we start the rollout. And we've just recently completed the rollouts in both Perrysburg 1 and Perrysburg 2 to enable CuRe. We have yet though, to roll out the upgrades that are needed in Vietnam. And there are restrictions and quarantine requirements and reduced travel and the like. So as we alluded to, we're working through and to try to find a path to keep it on schedule, but there is a significant risk that the rollout of CuRe in Vietnam, given the current situation would be delayed. But that's the most significant one that we're still working through at this point in time. As it relates to bookings, yes, we've got about 3.4 gigawatts of 13. We now with the 2 new factories, we'll be adding close to 3 gigawatts of incremental volume in 2013 -- excuse me, get the right year 2023, sorry about that. And there's a lot of volume still to be booked. So we probably got in the range of 10 gigawatts or something like that engagement with our customers, we've got a number of very large deals right now here in the U.S. as well as in the pipeline for India. As we highlighted, we've got about 7 gigawatts right now of a pipeline in India that we're working to execute now that we've made the announcement around the factory. Subject to final permitting and the incentive programs from the government finalizing that, we'll start contracting that volume as well. So there's no lack of opportunity. The engagement is good. I would not expect at least over the next few quarters, I don't see a significant slowdown in bookings momentum. I think we're going to have a very strong second half of this year to help start booking out 2023 and 2024.

Unidentified Analyst:

Congrats on the bookings. For the bookings specifically, could you comment on the average ASPs as you look into '23? Is that still $0.20 -- high $0.20 per watt range? And can you talk about where you're booking into that '23-plus time frame?

Operator:

Our next question comes from the line of Ben Kallo from Baird.

Alexander Bradley:

Yes, Ben, starting with the guidance. On a combined basis, you're not seeing the low end of the guidance range change. But what you are seeing is the impact of the settlement agreement that we had on the previous project come through. So the $65 million that was in the revenue line and flows straight through the gross margin. So that's a benefit to gross margin. If you look at the module side of gross margin, we're basically down about, call it, $15 million or so on volume as we lowered the lower end of the range on shipment volume and then about $65 million on freight. So it impacted in the quarter about $80 million on freight, $60 million outbound sales rate, $20 million inbound. We had about $15 million or so in the range as a risk. So we're having a net impact down of about $65 million. But again, don't forget that you had the impact coming off of this settlement agreement of $65 million. That's why the consolidated based on the range, you're not seeing it come down significantly.

Operator:

Our next question comes from the line of Brian Lee from Goldman Sachs.

Alexander Bradley:

Yes. So on the cash side, so we're guiding previously to $1.8 million to $1.9 million year-end number. That's now down to $1.35 million to $1.45 million. So $1.4 million midpoint. And the delta there is the $40 million of CapEx that's going to happen this year associated with that spend. So that still leaves another about $900 million to $1 billion or so that's going to happen in the next couple of years. We haven't given a minimum number that we're comfortable with. I think the business is going to be significantly cash generative over the next couple of years with the 6 factories that are already in place. I can't give you a guided number. But I'd say that we're going to generate enough cash organically, that would be comfortable we could finance the construction of the June factories on Boise we wish and not drop to levels that I wouldn't be comfortable with maintaining in terms of the base net cash balance. That said, for a few reasons, we may look to leverage the factory in India, especially. I think there's some optimization of capital structure here we might do. There's less equity going into a country where it can be more challenging to bring money in and out. I think there's some benefit to matching some of the revenue and expense stream with the capital structure. I think there's also some beneficial rates we could get using ECA financing, especially for some of the equipment is going to come out of Europe intently in the U.S. as well. So I'm comfortable we could with organic cash flow over the next couple of years, finance the factories on balance sheet without debt and leave ourselves at levels that be comfortable with, but I think there may be optimization around the balance sheet that will look to do as well. And then on the OpEx side, we're still working through numbers, but these factories are going to be significantly larger than the previous factories. You think about historically to put in place a factory that was $1.2 million now up to about $1.5 million, $1.6 million of nameplate somewhere in the region of $30 million to $40 million, depending on the location, depending whether it's the first or second factory came down a little bit more. For instance, our second Malaysia -- or second Vietnam factory is significantly a little cheaper than our first. It's always going to be a little higher in the U.S. than it is internationally given labor costs. But in indicative terms, you could take that and double it for scale. And so you could look at startup in the range of probably $60 million to $70 million per factory. In terms of timing, you're going to see a significant portion of the U.S. factory start-up hit in 2022, call it, 3 quarter, something like that, the remainder in 2023. The India factory is going to be a little behind that. You may see more like 25% to 50% hit in 2022 and the other 50% to 75% hit in 2023. And the other thing I'd say about OpEx is we did mention that we have about 80% and 90% fixed operating cost structure. So as we do scale these factory, there will be potentially some slight incremental SG&A. But as a whole, as you add that 6.6 gigawatts of capacity and keep the OpEx down, we do get a pretty significant contribution margin and operating margin expansion that we can benefit from.

Operator:

Good afternoon, everyone, and welcome to First Solar's First Quarter 2021 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon and thank you for joining us today. I would like to start by thanking the First Solar team for delivering a solid first quarter. Our operational and financial results were strong and market demand for our Series 6 technology continues to be robust. Operationally our second Series 6 factory in Malaysia exited its ramp period. Nameplate manufacturing capacity has increased to 7.9 gigawatts and we're now consistently producing 455 watt modules. Commercially, we have secured 4.8 gigawatts of year-to-date net bookings which include 2.9 gigawatts since previous earnings call. Financially, we reported module segment gross margin in line with our Q1 guidance and earnings per share of $1.96 which includes the completion of our US project development and North American O&M business sales. Overall I'm pleased with our strong start to the year which has positioned us to deliver our annual earnings per share guidance. Turning to Slide 3, I will provide an update on our Series 6 capacity ramp and manufacturing performance. Despite unplanned downtime caused by winter storms in Ohio and a temporary logistic driven billing material shortage in Malaysia along with planned downtime for throughput and technology upgrades which combined adversely impact cost for watt by approximately half a penny. We delivered strong manufacturing results for the first quarter. On a fleet-wide basis in March and in April month-to-date, megawatts produced per day was 20.2 and 22 which represents a 17% and 27% increase compared to December 2020. Capacity utilization was 92% and 99% despite being impacted by the aforementioned planned and unplanned downtime. Manufacturing yield of 96.7% and 97.4% continues to show strength in light of the ramp of our second Series 6 factory in Malaysia, which achieved manufacturing yields of approximately 93% and 97%. As previously mentioned, we started commercial production of our 455 watt module as both our factories in Malaysia and our fleet-wide average watt for module improved to 442 and 445 watts. This manufacturing performance has been a key driver of our cost for watt reduction and gives us further confidence as we execute on our cost reduction roadmap. It's also important to put our recent performance into context. Comparing to April of 2019 to April of 2021, month-to-date our average watt per module has increased by 26 watts. Megawatts produced per day has increased by 144%and manufacturing yield has increased by 9 percentage points. I'm pleased with what the team has accomplished. However, as we drive towards our mid-term goal of 500 watt module increasing throughput by 12% compared to re-rated capacity utilization baseline and increasing manufacturing yield to a mid-term target of 98.5%. We have an opportunity to significantly reduce cost through disciplined manufacturing. As a company, we have demonstrated disciplined execution and agility throughout the startup and ramp of our Series 6 factory including gathering new learning's from each factory rollout and utilizing them in the next. This culture of continuous improvement enables us to increase implementation velocity and reduce our ramp period. While it took our first Series 6 factory in Ohio approximately 22 months to achieve throughput in line with its nameplate entitlement. Our newest factory exited its ramp period in only one month time. The consistent improvement of our factory limitation process gives us operational confidence as we evaluate the potential for future capacity expansions. We believe the combination of a differentiated technology and a balanced business model of growth, liquidity and profitability is a competitive differentiator and will continue to enable our success. Three years ago in April 2018, we commenced commercial production at our first Series 6 factory and today, we have established a Series 6 factory footprint through which we have the potential to reach our 10 gigawatts of nameplate capacity based on our existing efficiency and throughput plans. Looking forward, strong demand for Series 6. A compelling technology roadmap, a strong balance sheet and a largely fixed operating expense cost structure. Our each catalyst as we evaluate the potential for future capacity expansions while we've made no such decision at this time. We are targeting to make a determination by our Q2 earnings call. From the shipping and logistics perspective, experienced by postal [ph] port congestion in the United States along with logistics challenges stemming from February's winter weather events in Southern United States. As a result, certain module deliveries planned for the first quarter were delayed and given ongoing port congestions. We see potential for similar delays in the second quarter which could result in delays in module recognition. While the cost per watt of PV modules has declined significantly in the past decade sales trade has largely remained fixed on absolute dollar basis. As a result, sales trading has become more meaningful percentage of the cost per watt. For example, in Q4 last year and Q1 of this year. Sales freight and warranty reduced our module segment gross margin by 7% and 8% respectively. Note, this highlight for markets with large recurring demand such as the US, India and Europe. The importance of having in-country or in region manufacturing which hence significantly reduce the cost of sales trade. As initially highlighted during our February earnings call, we continue to anticipate elevated shipping rates in 2021. We continue to partially mitigate the impact via the implementation of following initiatives. Firstly, as we improved module efficiency, we benefit from an increase in watt per shipping container and [indiscernible] decline and sales trade for a while. Secondly, as we implement Series 6 plus, we will reduce profile of our frame and junction box by approximately 10% enabling an increase in a number of modules per shipping containers. Thirdly, we intend to expand our distribution network footprint in the United States which we anticipate will increase domestic inventory buffers further reduce exposure to spot shipping rates and provide greater flexibility while reducing shipment timing risk for our customers. Implementation of these initiatives is important in order to help mitigate the effects of the challenging shipping market and achieve our 2021 cost for watt reduction objective. From a supply chain perspective, our strategy emphasizes long-term agreement that reduce exposure to spot pricing for commodities and raw materials. For example, our glass procurement strategy primarily relies on fixed price contracts and partnerships with domestic suppliers. This approach helps de-risk the value of our contracted backlog and provides greater certainty that will be able to meet our expected profitability. Our approach tutorium [ph] is similar, we secure our supply needs through multi-year fixed price agreements whilst driving to reduce CdTe usage per module through optimization of our vapor deposition profits while Tellrium is a key component of our semiconductor material. It is a minor component of our cost per watt given our CdTe thin film is 3% the thickness of a human hair. Also as part of our global high value PV recycling program. We're able to establish a circular economy by recovering more than 90% of the semiconductor material for use in new First Solar modules. Although such recycling on a large scale is still anticipated to be many years out given expected use for lot of modules. This has the potential to significantly reduce our ongoing Tellrium and cadmium needs. In the future, once power plants using First Solar modules reach the end of their useful life. Aluminum which is used in the construction of our frame has recently experienced a price increase to above pre-pandemic levels. Well the head structure we put in place has partially mitigated this impact. We anticipate some cost challenges related to aluminum during the year. However, part of our Series 6 plus implementation we anticipate reducing our frames profile in aluminum usage by 10% which we expect will mitigate a portion of this cost increase. Finally, despite the previously mentioned delays of certain module deliveries in Q2 and a result of our continued manufacturing execution and aforementioned risk reduced supply chain approach. We achieved our module segment gross margin target in Q1. Additionally, by cost of - for certain billing materials, we're tracking to achieve our targeted 11% cost per watt produced reduction between where we ended 2020 and expect to end 2021 while we intend to mitigate much of this impact related to the challenging shifting in market. Our revised target cost per watt sold reduction is 6% to 7%. Turning to Slide 4. In Q1, we completed the sale of our contracted Sun Streams 2 and uncontracted Sun Streams 4 in five projects to Longroad Energy. In April, we completed our uncontracted Sun Streams 3 project to Longroad as well. Across these four projects, Longroad intends to utilize approximately gigawatt of Series 6 modules of which 785 megawatts represent new bookings since the last earnings call. As it relates to our systems business in Japan. Our existing team and competitively advantaged core project development skill set of sitting, permitting, interconnection and securing long-term feed-in tariff contracts has positioned us well in the market. Today, we have an approximately 320 megawatts systems backlog in Japan which includes 55 megawatts of new bookings since the February's earnings call. This backlog is a reflection of our recent success averaging approximately 100 megawatts per year systems booking in Japan between 2018 and 2020. Looking forward in the near term, we have an opportunity to add this backlog with approximately 40 megawatts of Japan's system opportunities with feed-in tariff rights secured as they're pending satisfaction of certain permitting requirements. Across the total portfolio, we have the potential to capture approximately $260 million of gross margin in the next three to five years. With an approximately $15 million per year overhead cost structure. We anticipate the sell down systems projects in Japan will contribute meaningfully to our mid-term operating income. With the national commitment to carbon neutrality and limited domestic source energy generation. The market fundamentals of Japan are favorable to the continuing growth of solar. We continue to build a pipeline of post feed-in tariff opportunities that could target feed-in premiums or corporate PPA opportunities as the market matures. Before discussing our most recent bookings and top line opportunities. I would like to discuss several domestic and international policy updates. At the end of March, President Biden unveiled an infrastructure proposal that emphasized transit, revitalizing power grids and vastly expanding clean energy. While creating millions of jobs and position United States to outcompete China. Additionally the plan is intended to revitalize domestic manufacturing, secure the US supply chain, invest in R&D and train Americans for the job for the future. This is the most far-reaching federal proposal for programs that curb greenhouse gas emissions and address climate change. As the only alternative to crystalline silicon technology among the 10 largest solar module manufacturers globally. With a premier vertically integrated manufacturing process and differentiated CdTe cell technology. We're uniquely positioned to support domestic energy independence in the United States and play a leading role in this plan. We are the largest solar module manufacturing in the United States and directly employee over 1,600 US based associates. Also our domestic supply chain supports thousands of indirect jobs. For example, we procure our float glass from an NSG facility approximately 10 miles from our factory in Perrysburg. Which is the first new float glass line in the United States in 40 years. As a result of this investment, NSG has created long-term and high-quality manufacturing jobs and a domestic supply chain of their own. NSG, soda ash which is the primary material used in glass manufacturing is procured from supplier in Wyoming which is the state that has historically been the largest producer of coal. Pace of innovation is a core to our success. Which starts at R&D lab facilities in Silicon Valley in Ohio? As a reflection of this commitment since our IPO, we have cumulatively invested over $1.4 billion in research and development as the only thin cell module manufacturer of scale. With the manufacturing process that is handled entirely in each of our six factories. We own the end-to-end intellectual property and trade secrets for our CdTe cell technology. We believe the remaining nine largest PV module manufacturers all utilize the same semiconductor material. Additionally, none of these manufacturers are fully integrated relying on varying degrees, on third-party sourcing and intellectual property of upstream polysilicon ingot, wafer and cell manufacturers. While it's difficult to measure the value of the vast subsidies that the Chinese solar industry receives. These subsidies serve to artificially deflate our competitors cost per watt. Resulting in the marketplace that undervalues innovation and where technologies do not compete solely on their own merits. Despite this apparent and outrageous lack of fair trade. The advantages of our vertical integrated manufacturing process and differentiated CdTe cell technology leading to what we believe to be the lowest module manufacturing cost structure in the industry will continue to empower our success. With the Section 201 tariffs currently scheduled to expire in February of 2022, the Biden Administration has a natural window to pursue policies that address the root cause of the problem. China's unfair trade practices. Accordingly, we continue to advocate for and industrial policy that identifies clean tech manufacturing as a national strategic priority to advance US energy independence. We believe that this type of policy would be promoted through incentive by for domestic manufacturing, continued investment in advance, technologies. Closing by American loops and tariff reform. Turning to Slide 5, I'll next discuss our most recent bookings in greater detail. Leading corporate buyers have expressed concerns that due to the decentralized nature of the crystalline silicon supply chain. They're unable to ensure that the solar modules and their systems from which they buy power were not manufacturing use alleged forced labor. While our Series 6 energy quality and environmental advantages are all key differentiators. Customers increasingly are describing value to our vertically integrated manufacturing process, supply chain transparency and zero tolerance for the use of forced labor in our model manufacturing process and supply chain. While the pricing environment remains competitive these catalysts have created bookings momentum for deliveries in 2022, 2023 and beyond with customers seeking to de-risk their projects. Accordingly, we're pleased with our strong year-to-date net bookings of 4.8 gigawatts which includes 2.9 gigawatts since the February earnings call. After accounting for shipments of approximately of 1.8 gigawatts during the first quarter. Our future expected shipment which extended to 2024 are 14.8 gigawatts. Included in our 1.8 gigawatt shipments are approximately 0.2 gigawatts of Series 4 as previously shipped to safe harbor, the Investment Tax Credit. But were transferred to a third-party during the quarter in conjunction with the sale of our US project development business. Accordingly our comparable Q1 shipment number is approximately 1.6 gigawatts including 4.8 gigawatts of year-to-date bookings and 0.4 gigawatts of upside volume related to previously announced purchase order from Intersect Power. We're largely sold out for 2021, have 6.4 gigawatts of potential deliveries in 2022 and 3 gigawatts across 2023 and 2024. Overall the market remains competitive, we're pleased with the pricing levels that we're securing in 2022 and 2023 for our Series 6 plus and CuRe products. Although there remains uncontracted volume yet to be booked the ASP across our aforementioned 6.4 gigawatts of volume for potential deliveries in 2022 is only 11% lower than the volume to be shipped in 2021. Slide 6, provides an updated view of our global potential bookings opportunities. Which now totaled 16.5 gigawatts across early to late phase opportunities through 2024? In terms of geographical breakdown, North America remains the region with largest number of opportunities at 12.9 gigawatts. Europe represents 1.2 gigawatts, India represents 1.2 gigawatts, South America represents 0.7 gigawatts with the remainder in other geographies. As a subset of this opportunity is our mid-to-late-stage bookings opportunity of 7.8 gigawatts which reflects those opportunities we fill could book within the next 12 months. The subset includes approximately 5.4 gigawatts in North America, 1.2 gigawatts in India, 0.6 gigawatts in South America, 0.3 gigawatts in Europe and the remainder in other geographies. Note, this represents victories from our prior earnings call which is largely due to our recent bookings momentum. Finally note, included in the 720 gigawatts is a 1 gigawatt order for US customer that just hours ago we booked. Including this booking in our contract for future shipments. It is just shy of 16 gigawatts. I'll now provide an update on our technology roadmap. As previously disclosed, we launched our Series 6 program leveraging our existing Series 6 toolset which increased our module form factor by approximately 2% and our top production been by approximately 10 watts. Before we implemented this program, at our newest Series 6 factory in Malaysia which is now consistently producing 450 watt modules and we remain on track for fleet-wide implementation of Series 6 plus on the fourth quarter of this year. As previously announced, our Series 6 CuRe modules offer an industry leading 30-year 02% annual warranty variation rate which is up to 60% lower than conventional crystalline silicon product. Additionally, we anticipate improving module efficiency enabling a top production bin of 460 to 465 by the end of 2021. We anticipate this lower degradation rate combined with improved temperature co-efficient and super spectal [ph] response will build upon our existing energy advantages especially in hot and humid climates. As previously indicated, CuRe significantly increased the Series 6 competitiveness against bifacial modules. As a result of the aforementioned advantages as compared to a leading crystalline silicon bifacial module. We estimate that our cure module can produce up to 10% more lifecycle kilowatt hours per kilowatt installed in certain climates with extreme heat and humidity. Finally, we remain on track to implement CuRe and a lead line by the fourth quarter of this year and fleet-wide by the end of the first quarter of next year. As part of our R&D efforts, our CuRe program successfully removes copper from our CdTe vapour deposition process. This enhances the long-term stability of our CuRe modules and based on initial performance in the field and an accelerated live test demonstrates a near zero annual degradation rate. Given PV power plants have useful life of approaching 40 years, a reduction in the annual degradation rate can contribute to meaningfully higher lifetime energy. CuRe along with First Solar's other industry first and only product warranty that specifically covers power loss from cell cracking are recent examples of innovations and enhance our competitive position in the market. Finally, we are continuing to evaluate the potential to leverage the high-band gap advantages of CdTe in a tandem or multi-junction device. A tandem device has the potential to be disruptive high efficiency, low cost an advantage energy generation profile, leveraging many of the innovations in our CdTe cell technology roadmap. Additionally, we believe thin film semiconductor will be the key differentiator to achieve the highest performing tandem PV module. And I'll turn the call over to Alex, who will discuss our first quarter financial results and 2021 guidance.

Operator:

[Operator Instructions] your first question is from Philip Shen with ROTH Capital.

Mark Widmar:

Phil, first on the pricing environment. Clearly, we've seen pricing from up - as we look across horizon whether it's not a lot of volume for occurring. But at the extent we had US available supply and current use. You'll see from our pricing. But your eventual look across the horizon and to 2022, 2023 and 2024. The one limiting factor that you know relative to the number that you referenced is that, there's - in the US in particular the projects that people have bid are under significant pressure really from all dimensions. And ultimately it all come down, an affordability, although there's going to be a number of these project that just not going to happen because when you look at the general cost pressures that they're seeing, just commodity cost pressures, right? When steel going up, aluminum going up, copper going up. You're seeing pretty much the entire balance system labor cost under pressure as well. It's pretty strange in all these projects and one of things we got to be mindful of it. We price across the horizon. It still has to fundamentally work within a customers pro forma, their financials have to work. And so to, to try to go out and capture the highest potential price point. I'm not sure it's going to serve us the best when it comes to ensuring the viability of the project. And so we've been trying to work with very capable well financed counterparties and having high certainty and quality of the execution of the projects which form our views around certainty of execution, we need to make sure that the economics on pricing works. The other thing I would say that falls into the equation is the, our confidence around our cost reduction roadmap. So as to look to our cost reduction roadmap we are very happy with where we are and the opportunities that still in front of us to drive cost down meaningfully lower than where it is right now. The one piece of the cost structure that is not as robust inability to control, they were highlighting right now a sales trade. But as we're looking forward into these new contracts. We're putting variable structures and there around sales trade such that we're not carrying that risk profile. The customer is going to share in that and to the extent the sales trade environment phase similar to where it's right now then there's pass through at that cost with slightly different dynamic than what we had historically. So those variables all factor in how we price it. There's an opportunistic moment right now. We look to ourselves as establishing deep partnership in relationships with our own customers. Customers that we now have capabilities and execute and try to create a solution that works for both parties in that regard. As it relates to the capacity expansion, look India is going through horrible time right now. I mean you see cases there closes 400,000 a day I mean which is horrific but I don't want you to think that because of that, we're confident that with the help India will continue to receive from international partners and allies like United States and others. This will be a difficult challenge. We'll have to get through but they'll get through it. And we're still evaluating India very significantly as a growth market for us. We look at the technology and competitiveness of the technology in India, it's ideally suited. When you have CdTe cell technology especially with CuRe and improved long-term degradation rate, hot, humid climate. Mainly fixed tilt structures, mainly model facial therefore for the true value uplift we get from the CuRe against monofacial realizes itself and then higher ASPs. The fact that the duties that have been imposed right now for imports, makes even more critical for us and say how we address that market, even the events are the approved list of module manufacturers is another constraints to access in either markets. India is a very important market for us. US we're very well positioned to - we've got - already when we stayed in Ohio, we had an option on, actually purchased additional land that would accommodate a large facility. The current savings and commitments that we're seeing from the administration positive. But unfortunately slow back in some regards so that is little frustrating. But generally think pretty good undertones for enabling our work past of the year, our most important market in. As we highlighted in the call sale trade being closed to market. You can take a penny or so, a cost up from sales trade, right to drive across down even more competitive. So that's how important. The only thing I would say to make sure it's clear so is that, the other thing they were doing is that, the next factory or factories. Will be larger than anything we have today and they will be our most advanced and competitively positioned product and, in some case, we're also going to further enhance automation and through the factory process. So it's going to be best product, highest performing, lowest cost that will be said function and proven from where we're right and so that's taking a little bit more time to validating, solidifying all that, that worked to get comfortable with that. We've been spending a lot of time. I wanted to make it clear in the call that we will be making a final decision by the July earnings because I know it's something we continue get asked questions around. We're pretty advanced in our evaluation. To extent we make the decision to move forward and if you hit all the criteria's that we highlighted, then we'll make sure we make that announcement in July if we chose not to do it. Then we'll provide the direction that we're going to move forward in lieu of that. So yes, lot of good work being done right now. But we want to make sure whatever we do, is that we really create again competitively, its damage, disruptive product from where we're right now.

Operator:

Your next question is from Michael Weinstein of Credit Suisse Securities.

Mark Widmar:

Yes, that product will be ideally suited for that type of application. So it's going to be highest efficiency, best energy profile and that would be - we would target segments as a market that will pay a premium for the efficiency and residential would be primary market for that. And so as further along and commercializing that and scaling up that technology. Yes, I think it expands in a market segment that today we historically not sold into. But there'll be other high efficiency markets that will love to in terms of land constraint and other challenges that you have to deal with where our efficiency product would be advantageous. But yes, residential would be one.

Mark Widmar:

I've kind of alluded to this for a while. I mean we haven't really been - if the issue is tariffs on competition or tariffs on owned product. I mean assume, tariffs that were imposed on crystalline silicon, [indiscernible]. Unfortunately after the first 16 months [indiscernible] being implemented the tariff went away because the bifacial exemption and yes and that's been reinstated, I guess late last year. But most of what we had already sold really through from whenever it was June 2019 until now. It hasn't really been influenced by tariff, the 201 tariffs because of the bifacial exemption and product coming in from Southeast Asia into the US market without having to pay tariffs. The fact that it was then re-imposed late last year really didn't change much for us either because most of our 21 [ph] filing was already sold through at that point. We try to continue to manage and develop relationships and partnerships and even with the 201 were first imposed. It wasn't like we took that as an opportunity to gouge our customers. It doesn't service any good. We're still in the early innings of this industry and the relationships that we establish and the trust that we create with our partners will determine each of our success in over the next decades to come. So yes, they can influential. We do believe that they're important. But we also do believe that there's a need to have additional US manufacturing capabilities and tariffs can help enable that. But it's not something we feel that we would try to take advantage of. As it relates to, if our product were to be - a product that we import from Southeast Asia manufacture somehow would be subject to tariffs and we have provisions within our contracts to try to address those types of events and circumstances if they were to occur. My assumption from your question was just really more related to tariffs relative to our crystalline silicon competitors. It informs the thought around pricing. But we would never want to take it as an opportunity to gouge our customers.

J.B. Lowe:

I just wanted to circle back on the project economics comment that you made, Mark. Because we're seeing kind of the same commentary from the crystalline silicon guys that. They would like to push pricing higher given all their cost issues on the polysilicon side. But they're getting push back from customers who - the economics are pretty thin on their front. So they're not having success pushing through prices increases. So there's that. but I'm also wondering, is there anything in your backlog that you think is more at risk than anything else just given that maybe some of the products in your backlog have some of those thin margins? Just wondering what you're thinking about that.

Operator:

Your next question is from Moses Sutton of Barclays.

Mark Widmar:

So with the Sun Streams, the Sun Streams module volume when you say systems, was not part of the systems sales. I want to make sure that clear, right. So that was a module.

Mark Widmar:

Were really Sun Streams 3, 4 and 5 was never part of the systems pipeline. 3 got terminated, right? But most of that volume was not part of the systems pipeline. But in terms of and Alex you may know this one, in terms of the module volume that when we sold [indiscernible] how much of that was included in the 2.9?

Mitch Ennis:

744.

Mark Widmar:

So the 29744 and Moses, I know it's not part of the actual number. But I also want to make sure, since you asked the question. The other gigawatt that we just booked today 3.9 was not at all tied to the systems business. So if you look at it, we've got 3.9 gigawatts that were booked since the last earnings call and about 707 megawatts would have been tied into business [ph].

Mark Widmar:

Moses, can you repeat the question one more time? The weight I got that, make sure I understand your question.

Mark Widmar:

What we're seeing right now because of large form factors, how we're seeing modules now that are like three square meters and alike, they're even shipping them vertically. Those cost of sales freight for those products are going to be much higher than where we're right now. So if you looked at where we would have been again for the - let's say the two-meter square form factor which was the standard before now there's variance all over the place. We would have been slightly higher and mainly because of we wait out on a container. So they would actually be able to get more modules onto a container than we would and they had a slightly higher efficiency. But now if you go to bifacial glass, larger form factor. What's actually happening is they're creating a disadvantage on a freight cost for themselves.

Brian Lee:

I had two, one on systems and just one on kind of the cost reduction path. First on the systems, Mark you said there is - there's $130, $160 million in gross profit this year in the guide. Just wondering after all the divestiture here recently how much of any there's left pretty monetized in 2022 and then if there's any Japan in the near to medium term, you're kind of you phrased it as like three to five-year opportunity. Just wondering if there's anything in the next one to two years there. And then on the cost reduction side, you mentioned 11% reduction in ASPs for 2022 bookings at the moment. Cost reductions have been at that level or below it seems like so just wondering, is there a scenario in which you kind of start to accelerate that and maintain a stable gross margin on modules given, you're starting already 11% in the whole if you will on the pricing side adding into next year. Thanks guys.

Mark Widmar:

The other thing I would say Brian is that, there are lot of things that are in the mix now that will help continue to drive down the cost per watt. I mean part of this year is you got to remember we're taking a little bit of headwind around the impact of planned downtime as we made a number of upgrades before CuRe in particular. So that's costing us about half penny of watt or so that for the year. Now for into next year, we don't have as significant upgrades as we currently envision relative to the technology roadmap that we need to rollout that would have as significant of a headwind given the downtime we had to take for this year. So that has normalized itself. We also have the efficiency continues to improve from this point through the end and we have an exit from 465 watt and then we'll exit 2022. I think its 480 watt or something like that as well. What we previously indicated. So that helps drive. But then we've got a number of other billing material initiatives that will drive improvement and one of them just even on our last cost because there's different tiered pricing as we drive more volume across our contracts for glass. We hit different tiers would actually drive down pricing. So there's number, we used that bridge before. When you look at the throughput lever, where there's more throughput to go. There's more efficiency benefit and then we have the watt, the improvement that we'll make and we don't have as much planned downtime at least as we currently envision it. So those who all will help us manage and cross that horizon for 2022.

Operator:

Good afternoon, everyone, and welcome to First Solar’s Fourth Quarter 2020 Earnings and 2021 Guidance Call. This call is being webcast live on the Investors section of First Solar’s website at investor.firstsolar.com. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon and thank you for joining us today. I would like to start by expressing my gratitude to the entire First Solar team for their hard work and perseverance throughout 2020. Although 2020 was a very challenging year, I’m proud of the way our team responded with our ongoing commitment to health and safety, delivering value to our customers and achieving our objectives in this unprecedented year. While, Alex will provide a more comprehensive overview of our 2020 financial results, I would like to first note our full year EPS results of $3.73. This result came within, but towards the low end of the guidance range we provided at the time of our third quarter earnings call, largely due to the volume and timing of our Sun Streams 2 project sale. Despite this timing impact, a continued intense competition across the crystalline PV supply chain and unforeseen challenges related to the pandemic, we are very pleased with our financial and operational results in 2020. Turning to Slide 3, I will discuss some of our key 2020 accomplishments. Firstly, our vertically integrated manufacturing process, diversified supply chain and differentiated CadTel technology enabled us to mitigate potential disruptions to our manufacturing operations from the pandemic. Accordingly, we produced 5.9 gigawatts of Series 6 and exited the year with a top production bin of 445 watts. Secondly, driven by continued strong manufacturing execution, in Q4 we achieved a year-on-year 10% cost per watt reduction despite an increase in volume sold from our higher cost for higher facilities and an increase in sales freight costs. Thirdly, early generation First Solar CadTel modules that were installed at an NREL test facility in 1995, reached an installed life of 25 years and demonstrated a 25 year degradation rate of 48 basis points per year. While our manufacturing processes, product design, efficiency and warranted long-term degradation rates have improved significantly over the past 25 years, this result help us understand a legacy performance baseline and provides further confidence in the superior long-term durability and degradation performance of today’s Series 6 product. Fourthly, we extended our limited power output warranty from 25 to 30 years for our Series 6 modules and our Series 6 modules are now protected by the industry’s first and only product warranty that specifically covers power loss from cell cracking, which can have a meaningful impact on reducing systems insurance costs. Finally, at the year-end we had shipments of 5.5 gigawatts – bookings of 5.5 gigawatts and contracted an additional 0.7 gigawatt of volume that remains subject to conditions precedent. Overall, our operational financial results in 2020 have build momentum as we move into 2021. Turning to Slide 4, I’ll provide an update on our Series 6 capacity ramp and manufacturing performance. Over the course of 2020, we realized significant operational improvements comparing December fleet wide metrics year-on-year, megawatts produced per day increased to 17.3 megawatts, an increase of 23%. Fleet wide capacity utilization increased to 117% an increase of 20 percentage points. Product yield increased to 97.6%, an increase of 3.2 percentage points. Average watts per module increased to 439 watts, an increase of 9 watts. And as noted, our top production bin increased to 445 watts. Our manufacturing discipline and execution enabled us to achieve our cost per watt reduction objective for the year. We exited 2020 with 6.3 gigawatts of nameplate manufacturing capacity and effective January 1, we have rerated our throughput entitlement for purposes of calculating capacity utilization. Since launching Series 6, less than three years ago, the factory throughput entitlement was based on the initial tool set in factory design. Given the significant improvements made over the years, we have revised our throughput entitlements to reflect the 2020 exit rate throughput. Our strong execution has continued into 2021 with improvement across all key metrics since year end. In addition to February, we commenced initial production of our Series – our second Series 6 low cost factory in Malaysia. With less than three weeks of production, the factory is ramping nicely with demonstrated capacity utilization reaching approximately 80% yields in excess of 90% and a top production bin of 450 watts. By the end of the year, we anticipate our Malaysia factories will have a nameplate capacity of 3 gigawatts. Second, briefly on our systems segment. In February, we completed the sale of our 150 megawatt AC Sun Streams 2 project to Longroad Energy. We also signed agreements with Longroad to sell the Sun Streams 4 and 5 projects and are in late stage negotiations to sign an agreement to sell our Sun Streams 3 project. As part of this portfolio acquisition, Longroad intends to utilize 1 gigawatt of Series 6, of which 785 megawatts will represent new bookings upon the closing of these transactions. Prior to signing the potential agreement to sell Sun Streams 3, the project PPA was terminated, which enabled Longroad to include Sun Streams 3, 4 and 5 projects and their power marketing efforts after transactions closed. While, this resulted in an approximately 85 megawatts systems booking in February at the time of closing, we expect this opportunity will be recognized as a new module only booking. Turning to Slide 5, I’ll next discuss our most recent bookings in greater detail. Our recent bookings momentum has continued with 3.3 gigawatts of net booking since the October earnings call. After accounting for shipments of approximately 1.8 gigawatts during the fourth quarter, our future expected shipments would extend into 2024, our 13.7 gigawatts. The majority of the bookings since the prior earnings call have been third-party module sales, which totaled 3.3 gigawatts. We continue to see an increase in multi-year module sales agreements, driven by our customer’s need for certainty in terms of technology they’re investing in and their suppliers, integrity and ethics. Representative of this, we have executed an agreement with Intersect Power to supply up to 2.4 gigawatts for deployment in projects in 2022 and 2023 of which approximately 2 gigawatts is recognized as a booking. In addition to this new booking, Intersect has the option to utilize an additional 0.4 gigawatts of module volume to support their portfolio project up to 2.4 gigawatts. We’ve also secured 340 megawatts for deliveries in 2023 with a leading provider of hydrogen fuel cell solutions. A pillar of growth for the hydrogen economy is the ability to cost effectively produce large scale green hydrogen with renewable energy sources. With an environment of CadTel technology, we are well-positioned to address this market need. Additionally in Japan, we have continued success adding to our contract assistance backlog with the addition of two projects, totaling 51 megawatts. With new net bookings of 3.3 gigawatts and with additional 1.4 gigawatts of expected bookings associated with the closing on the sale of the Sun Streams portfolio and the U.S. project development business, we are pleased with the robust demand for our Series 6 product. Including these new bookings, volumes contracted to conditions precedent and the potential 0.4 gigawatts of incremental volume related to the Intersect transaction. We have 7.2 gigawatts of volume for potential deliveries in 2021, 5.9 gigawatts in 2022 and 2.3 gigawatts across 2023 and 2024. Overall, while the market remains competitive, we are very pleased with the pricing levels that we are securing to date for our differentiated Series 6 Plus and CuRe modules. And an industry that sells electrons and were products are evaluated based on the quantity of electrons they will produce, we also differentiate our business model through our commitments to an environmental footprint of our technology, product secularity and supply chain transparency. We call it Responsible Solar, and you can learn more about it at our corporate website. Turning to Slide 6, I’d like to discuss the strategy and advantages of this approach. Firstly, due to our resource efficient manufacturing process, our CadTel modules have the lowest carbon and water footprint available in the market today. With this advantage position Series 6 is the world’s first PV product to be included in the EPEAT registered for sustainable products, which conforms to the NSF 457, the industry’s first sustainability leadership standard. Designed to help institutional purchasers, EPEAT is used by national governments, including the United States and thousands of private sector, institutional purchasers worldwide as part of their sustainable procurement decisions. Secondly, we have over a decade of experience in operating high value PV recycling facilities on a global scale and remain the only solar manufacturer to have global in-house recycling capabilities. This recycling process establishes a circular economy by recovering more than 90% of the semiconductor materials for reuse in First Solar’s models and 90% of the glass reuse in new glass container products. Thirdly, our vertically integrated manufacturing process enhances our supply chain transparency and control over end to end manufacturing process. We believe that our responsible solar strategy is the right way to do business and in a growing number of markets yields an economic advantage. For example, France already has a rule that favors PV modules with a low carbon footprint, Spain has also appears to be moving towards incorporating the carbon footprint metric and its renewable energy procurement program. The reason update requires owners of renewable energy generation assets to submit carbon footprint data to the countries renewable energy registery, gathering the information needed to shape the procurement mechanism that may benefit low carbon solar. In the United States, Vectren a utility that services Indiana and Ohio included an environmental emission minimization objective within their integrated resource plan. This objective accounts for the cradle-to-grave emissions impacts of different forms of generation, including the low carbon footprint of thin film PV modules compared to crystalline silicon. In addition, Alliant Energy and Consumers Energy, two utilities in the Midwest have included the after mentioned NSF 457 sustainability leadership standard for PV modules and inverters in their most recent solar solicitations. We’d also like to take the opportunity to touch on reported use of forced labor in China’s polysilicon manufacturing industry. We have repeatedly and unequivocally condemned the preparative use of forced labor in China’s PV solar supply chain, and we’ll continue to do so as long as it remains an issue. We also reiterated our commitment to zero tolerance of forced labor throughout our supply chain. We believe there should be no place for a solar panels or even a single component, no matter how small is produced by a human being against their will. We’re seeing the reports that authorities in the United States are developing plans to expand their Jinjang specific import regulations to include solar. And in the latest version of the Forced Labor Prevention Act bill the U.S. House of Representatives, including polysilicon as a high priority sector. We recognize the challenges of this potentially trades for companies that have traditionally relied on Chinese-based firms for their modules. But as an industry, we cannot accept a view of solar at any costs. This is an important reminder that over-reliance on China to supply subsidized solar panels comes at a price that may not always be reflected on the bottom line is a price that many include – they include needing to look the other way on environmental, social and human costs. It’s also yet another reminder one of several we’ve had this past year about the importance of diversity of supply. Before turning the call over to Alex, I would like to provide additional context on the effects of tariffs on the U.S. and global PV markets. In December 2012, during the Obama-Biden administration, the United States imposed anti-dumping and countervailing duties after determining that domestic crystalline silicon industry was materially injured by imports of crystalline silicon cells and modules that were sold at less than fair value and subsidized by the government of China. In March 2019, the United States continues these tariffs. They’re also a second set of anti-dumping and countervailing duties on Chinese crystalline silicon modules with non-Chinese sales. Those duties were imposed in 2015 and in 2020, they were continued. Given the tariffs only applied to a portion of crystalline silicon supply chain, Chinese manufacturers added cell and modules capacity in nearby countries in Southeast Asia. Today with this adjustment to their supply chain, our crystalline silicon competitors, they not only avoid these tariffs, but also continued to use government subsidized polysilicon, ingots and wafers manufactured in China. Separately, in February of 2018 during the Trump administration, the U.S. imposed Section 201 tariffs on imported crystalline silicon cells and modules from most countries with limited exceptions over a four year period. However, between June 2019 and November 2020, an exemption from Section 201 tariffs was granted for crystalline silicon bifacial modules. This exclusion enabled Chinese solar companies with bifacial cells and modules assembled in Southeast Asia to avoid the Section 201 tariffs as well as the anti-dumping and countervailing duties, while they’re still using subsidized polysilicon and ingots and wafers from China. Despite access by the United States in India, most global markets have allowed unencumbered access of government subsidized panels from China resulting in PV Academy and global goals that are largely hold into a single technology supply chain and country. We believe our differentiated technology and advantage cost structure and a balance perspective on growth liquidity and profitability has enabled and will continue to enable us to succeed in the global marketplace, despite the lack of fair trade. As the only alternative to crystalline silicon technology among the 10 largest solar module manufacturers globally, First Solar provides domestic supply security and enables the United States and global markets to reduce their over-reliance on imported panels from China. We remain hopeful for a future where both free and fair trade can be established in the PV industry. I’ll now turn the call over to Alex who will discuss our Q4 and full year 2020 results.

Mark Widmar:

All right. Thank you, Alex. As our company’s founding Over 20 years ago, the PV industry has been through periods of rapid growth, declining costs and technology evolution. We’re one of the few solar companies that both entered and exited this last decade. We have continued to adapt our business model to remain competitive and differentiated in a constantly evolving market. For example, our original assets into O&M and EPC and project development was to address an unmet need of the market and capture a profit pool. Our acceleration of Series 6 production was a competitive response to address the current market condition. Despite these transformation among others, our core identity as a module manufacturing company with a differentiated CadTel technology has remained constant. As we look into the future with a more focused business model, our pace of innovation will be critical to our competitive strengths, enabling us to leverage our points of differentiation and capture compelling value for our technology. CuRe, cell crackling warranty, and responsible solar strategy are recent examples of innovations enhancing our competitive position in the market. The market momentum for PV continues to build. Our Series 6 energy, quality and environmental advantages are all key demonstrators, which we believe we’ll enable us to meaningfully participate in this wave of demand for clean and affordable energy. Based on the growth of selected people markets and our competitive advantages, we believe we can grow our manufacturing capacity while still selling our products into regions where our technology has points of differentiation. Within this context, Slide 9 provides an updated view of our global potential bookings opportunity, which now totals 19.7 gigawatts across early to late-stage opportunities through 2023. In terms of segment mix, this pipeline of opportunities is exclusively third-party module sales. In terms of geographical breakdown, North America remains the region with the large number of opportunities at 14.9 gigawatts. Europe represents 2.3 gigawatts. India represents 1.8 gigawatts with the remainder in other geographies. A subset of this opportunity set is at mid- to late-stage booking opportunities of 12.6 gigawatts, which reflects those opportunities we feel could book within the next 12 months, and includes the aforementioned 1.4 gigawatts of contracted volume subject to satisfaction of conditions precedent. This subset includes approximately 10.2 gigawatts in North America, 1.2 gigawatts in India, 0.9 gigawatts in Europe of which 0.7 gigawatts is based in France and the remainder in other geographies. This opportunity set coupled with our contracted backlog gives us confidence as we continue scaling our manufacturing capacity. Turning to Slide 10, as we’ve continued to drive additional throughput, increased average watts per module and improved manufacturing yield, our Series 6 production exited 2020 with nameplate capacity manufacturing of approximately 6.3 gigawatts split between 4.1 gigawatts at our international factories in Vietnam and Malaysia and 2.2 gigawatts in Ohio. With the commence production at our second Series 6 factory in Malaysia, our global manufacturing footprint increases to six factories. At the end of 2021, we anticipate increasing nameplate capacity to 8.7 gigawatts, which includes 2.6 gigawatts of capacity in Ohio and 6.1 gigawatts across four factories in Malaysia and Vietnam. This 2.4 gigawatts in incremental year-over-year capacity is reflective of our new Malaysia factory and expected improvements in average watts per module and throughput across the fleet. By the end of 2022, we anticipate increasing throughput by 12% compared to our rebated throughput entitlement and expect continued improvements in our average watts per module and manufacturing yield. Accordingly, by the end of the year, we anticipate increasing our fleet-wide nameplate manufacturing capacity to 9.4 gigawatts, which includes 2.7 gigawatts of capacity in Ohio and 6.7 gigawatts across our international factories. This 0.7 gigawatts anticipated incremental capacity is expected to come from optimization of our existing footprint. As previously highlighted, we are evaluating the potential for future capacity expansion and they think to further diversify our manufacturing presence. In addition to the factors we’ve previously highlighted, we’re also evaluating domestic and international policies to ensure any such expansion as well-positioned. While we have made no such decisions at this time, any Greenfield capacity additions are unlike contribute to our 2022 production plan. From our production perspective, in 2021, we expect to produce approximately 7.4 to 7.6 gigawatts, which is within the 7.3 to 7.7 gigawatts range, we provide at this time the last February guidance call. Note, our second Malaysia factory will continue as ramp period through the end of the first quarter and we are planning for over three weeks of downtime across the fleet to implement technology and throughput upgrades. In 2022, with the addition of the fully ramped factory in Malaysia and ongoing improvements across the fleet, we expect to produce 8.6 to 9.0 gigawatts. Turning to Slide 11, I will now provide an update on our technology roadmap. Over the course of 2020, we’ve made steady progress in our technology roadmap and in the year with a top bin of 445. Early in 2021, we have demonstrated continued progress increasing our fleet wide average per module to 444. For February month-to-date and for our new Malaysia factory introduced our Series 6 plus module, the next phase of our technology roadmap with a current top bin of 450 watts. Leveraging our existing Series 6 toolset, we increased our module form factor by approximately 2% and increased our module efficiency, which has increased our top bin production by approximately 10 watts. Note, after our second Malaysia factory ramp is completed, we anticipate our top bin will be 455 watts. Importantly, this increase in form factoring is sized to reduce balance of system cost per watt by adding module wattage, without material changes to the installation process or support structure. We anticipate implementing Series 6 plus across the fleet over the course of 2021. From our manufacturing cost perspective, we expect this additional wattage reduce our costs and sales straight freight per watt, which I will later discuss. For the fourth quarter of 2021, we anticipate commencing initial production of our copper replace Series 6 or CuRe on our lead line production. As previously disclosed, this program is expected to not only increase module wattage, but also meaningfully improve lifetime energy performance. Accordingly, by the end of 2021, we anticipate our top production bin will reach 460 to 465 with an expected 30-year warranty degraded rate, approximately 50% below our existing baseline. Given PV power plants have an expected useful life of up to 40 years, our reduction in a module is long-term degradation is expected to be a material benefit to project economics, as it increases energy density of the module and life cycle energy generation. As demonstrated on Slide 12, we believe that benefits of improved module efficiency and temperature coefficient will result in a 7% higher energy density in the first year for our 465 watt CuRe module compared to our 440 watts Series 6 module. Due to the expected reduction in our CuRe modules long-term degradation rate, we expect is improvement can increase to 20% in year 40, which represents a 13% improvement over the life of the asset. As we stated previously, we believe CuRe’s significantly increases Series 6s competitiveness against bifacial modules. As a point of reference, bifacial modules generate in an estimate of 4% to 8% more energy than comparable monofacial modules. More importantly, CuRe’s energy uplift does not increase the module or balance assistant cost as typically seen with bifacial modules. By the end of the first quarter of 2022, we anticipate the entire fleet will be converted to CuRe. This is anticipated to provide additional benefits to our average watts per module and cost per watt. Through the implementation of our copper replacement program combined with our ongoing R&D program, we’re aiming to achieve a top production bin of 475 to 480 watts by the end of 2022. Note, on our second quarter earnings call, we stated that we expected a 480 watt module bin 2023. With a CdTe cell efficiency entitlement in an excess of 25%, we see a path to significantly increase our module outage and efficiency in the midterm. With this path to increase efficiency coupled with our degradation, spectral response and temperature coefficient energy advantages and vertically integrated manufacturing processes, we believe the outlook for our technology remains well positioned in a global PV market. Finally, we continue to focus on advanced research and development under evaluating the potential to move beyond a single junction device and leverage the high-band gap advantages of CdTe in a multi-junction device. A multi-junction device has the potential to be disruptive high efficiency, low cost module within advantage energy generation profile. Well, the evaluation for this technology is in early development, we are aiming to utilize many of the product enhancements in our existing CdTe roadmap. Turning to Slide 13, I’ll provide some context around our module cost per watt, as initially presented on our guidance call in February 2020, we forecasted a Series 6 cost per watt reduction of 10% between where we expected to end 2020 and the end of 2019, despite unforeseen challenges related to the pandemic pricing pressures and the global shipping market and rising commodity costs, including aluminum, which we mitigated in part through a hedge structure and increased demand for PV glass, we executed on our cost per watt roadmap for the year and achieved this target. Looking into 2021, I’d like to start by addressing how we intend to manage key bill of material and sales freight costs. Firstly, given our module utilizes CdTe chemistry, our cost per watt is unaffected by fluctuations in polysilicon pricing. Secondly, from the glass perspective, growing solar demand and the emergence of bifacial modules have continued to put pressure on the supply and cost of PV glass. However, our glass procurement strategy primarily relies on forward contracts and localization of glass supply. In 2021, we intend to further localize our glass needs domestically in the United States and Malaysia through long-term supply agreements. This strategy enables us to mitigate the cost of variable spot pricing for glass and inbound freight. Thirdly, from a sales freight perspective, utilizing contracted routes and minimizing changes helped alleviate some of the impact of higher spot rates in 2020 in the first quarter of 2021. Despite higher shipping rates expected in 2021, we intend to utilize our distribution center strategy to mitigate some of these events. Note, we expect sales freight and warranty to produce module segment gross margin by 7 to 8 percentage points in 2021, compared to 7 percentage points in 2020. Finally, as part of our Series 6 plus implementation, we anticipate a reduction in the module profile by reducing the thickness of our frame and junction box. In addition to reducing the bill of material costs, we anticipate this development will enable us to increase modules per shipping container by approximately 10%. As it relates to our Ohio manufacturing facilities, despite exiting 2020 with a higher cost per watt in comparison to our international factories, we have displayed significant improvements in 2021 through the following initiatives. Firstly, in the fourth quarter, the manufacturing yield was 96%, which was below the fleet average. We anticipate this will improve to 97% by the end of 2021, which provides a benefit to our fixed and variable costs per module. Secondly, we anticipate increase in our nameplate manufacturing capacity to 2.6 gigawatts by the end of the year, an increase of 18% compared to the end of 2020. Finally, our cover glass facility in Illinois started in the fourth quarter of 2020 and a float glass facility in Ohio started in the first quarter of 2021 and we’ll supply our Ohio factory. We anticipate this will provide a benefit to the variable portion of our cost per watt. With the implementation of these key initiatives among others, we anticipate our Ohio cost per watt headwind relative to our international factories will exit 2021 $0.02 per watt higher, including sales freight. On a fleet wide basis, relative to where we exited 2020, we anticipate reducing our cost per watt produce by 11% by the end of 2021, due to the ramp and underutilization costs related to the affirmation factory ramp upgrades and challenges related to sales freight, we anticipate reducing our cost per watt sold by 8% by the end of the year. As we look beyond the midterm, I would like to revisit the five key levers that we believe will enable us to continue to reduce in our cost per watt. Starting with efficiency, we anticipate increasing our top production bin from 445 in December 2020, a top production bin of 475 to 480 watts by the end of 2022. With a midterm goal of 500 watts per module, we see the potential for continued improvement in our module performance. Improvements in module watts generally provide a benefit to each component of the cost per watt, including our variable and fixed bill of materials and sales freight in warranty costs. Secondly, by the end of 2022, we anticipate increasing throughput by 12% compared to our rerated capacity utilization baseline to the implementation of the additional tools and debottlenecking efforts. This drives additional throughput on our existing manufacturing footprint resulting in the fixed cost solution benefit. Thirdly, while we’ve made steady improvements to our manufacturing yield over the course of 2020 achieving 97.6% in December, we anticipate a fleet wide yield of 97.5% in 2021. While our international factories have achieved yield, in excess of 98%, the plant upgrades for Series 6 plus and CuRe are expected to impact yield performance during the year. However, in the midterm, we see a path to increase our fleet-wide manufacturing yield to 98.5%. Fourthly, we see midterm opportunities to reduce our bill of material costs by 20% to 25%, primarily across our glass and frame. Finally, we believe the combination of sending our module profile and transportation optimization can lead to a 15% reduction in freight costs. Combining the benefits of our CuRe and our other R&D work with aforementioned cost levers, we believe we are strongly positioned to continue to drive Series 6 cost per watt efficiency and energy improvements over the near and midterm. I’ll now turn the call back over to Alex, who will discuss our financial outlook and provide 2021 guidance.

Operator:

[Operator Instructions] Our first question comes from Philip Shen with ROTH. Your line is open.

Mark Widmar:

All right. So I help to get on them all three of them. With on booking, we’re real happy with the momentum. And just, if you even look at the mid to late-stage opportunities for that – we expected that opportunities, which we could close within the next year with north of 12 gigawatts sitting there. The momentum we’re starting off with right now, we expect 2022 to be a very strong booking year. As it relates to the discussion and comment around implications of forced labor. I think we try to hit on some of those themes of and it’s probably just interesting one particular issue, but it goes back to this concept that we refer to as responsible solar. And there clearly are a number of counterparties and customers that we engage within conversations that are one concern about over-reliance, concern about maybe the current state of political relationships between the U.S. and China or India and China or other markets as well. And as a result of that, they’re looking for alternatives and one thing that’s great about, first of all, not only do we have great technology and great capabilities, but having, a different standard, which we hold ourselves accountable for. And we have different value attributes that we can provide to our customers. And certainty is one and dealing with a counterparty or a supplier was a different, they themselves, from an integrity and ethical standard to the highest levels. I think it’s important and it’s starting to come into the bookings and what we’ve started to see now in the pipeline that we have. So Phil is one of many, I think there’s still a lot of people, they’re trying to understand the whole forced labor and how it plays out and what the potential implications are around it. But what I will tell you is that some of end customers that we have, not referring to here as the IPP or developer or VPC, but others that are more the off-take agreements, they’re very concerned in some cases they’re incorporating conditions within their procurement criteria to ensure that there’s zero tolerance for forced labor and not only the models of which are being procured and utilized in the project they may have in the U.S. or somewhere else, internationally. They want to make sure that, that their suppliers also have zero tolerance and there’s nowhere through their entire supply chain. Do they tolerate a forced labor? And that makes it very hard as you know, with the complexity of business silicon supply chain to make those types of new assertions and new representation. As it relates to our goals. And I’ll be very transparent of goals. I’m not going to give you a discreet timing, but we clearly want to be, as we exit this year, our is goal we want to be sold out at 2022. We want to be more than halfway sold out at 2023 and have a meaningful proportion of our 2024 volumes contract. So and when you look at where we are right now, and as you’ve indicated, we’re pretty in pretty good position for 2022. We used to clearly have more work to do. And I keep telling them our Chief Commercial Officer, let’s keep selling and keep selling and taking the opportunities that we can. And it’s good to see the pipeline and the robustness and resiliency that we have that hopefully gets us to that goal of accomplishing that because by the time we exit the year. And that was clearly would put us at a much higher than we historically have tried to say, let’s maintain that a one-to-one sold to book ratio and that will be accomplished. That will be much higher than our historical one-to-one. And at least where we sit right now, we feel confident we can get that. ASPs, what I’ll say, Phil around that is, I mean, if you look at the Q, when it comes out or the K in this case, I think it’s going to come out with an average of like $30.80 or something like that. The metrics are going to tell you that. I wouldn’t say that, we’re starting to see increase in ASP, we wouldn’t say that’s necessarily reflected what we’re seeing. And we are starting to see independents in each year of which we’re booking out into ASP is starting to firm up and maybe we’ll start to see some resiliency in the upward direction. But we’re at – like I said, we sat on the call is we’re very pleased and happy with the ASPs that we’ve been able to capture relative value we create in our technology, and then the opportunity to continue to improve overall cost reduction roadmap, maintain a solid gross margin. But more importantly, as you look at year-over-year, we’re growing in our capacity and our sole dimes will be up significantly year-on-year as well, but all sort of creates contribution margin that helps expand operating income.

Brian Lee:

Thanks for taking the questions. I had to hear, I guess, first, Mark, can you – of the 1.1 gigawatts assistance, I think you talked about this, but how much is targeted to be sold this year, next year, and then presumably 2023 will be the last year where you see some systems business revenue, and how much in that year? And then the gross margins, I know, they depend a lot on mix, but it seems like if we back up the components where you’re doing pretty well, it’s about a high-single-digit, low-teens number implied for this year. Is that going to be kind of the go-forward margin level? I would’ve thought it’d be a little bit higher given Sun Streams made it into 2021 versus 2020, but any thoughts around mix implications for margins and how to think about margins for that business as you still have some revenue to monetize over the next couple of years. Thanks guys.

Alex Bradley:

Yes. So Brian, if you look at the guidance we gave, total revenue $2.85 billion to $3 million, of that module $2.45 billion to $2.55 billion that implies systems of $400 million to $450 million of revenue. And on the gross margin side, on the $710 million to $785 million company-wide and module $580 million to $625 million, so again implies systems $130 million to $160 million. So if you look those gross margins, it’s 25% to 26% at the company level, systems looks pretty high, but it’s really very limited volume as the systems is in the low 30’s, skewed a little bit by Sun Streams, and then potentially a little bit of Japan coming in backend of the year. But the module that comes in at about 24% to 25%. So that’s where you’re seeing module gross margins for the year. And then as you’re talking about kind of how to look at that going out, we tried to give a little bit of color here. On the gross margin level, we talked about the ASP decline and what we’ve got books, right? And if you look at 2022, there’s clearly still a lot to book in there, but we do have a significant amount of contracted already. And we said, if you look at the ASP decline, 2021 and 2022 goes down about 10% and then cost decline go down 11%. Now those are off different bases, obviously on an ASP and a cost per load. As you can see that we’re getting costs coming down at a slightly better than the ASP decline going from 2021 into 2022 and at the same time, you’re getting some additional volume coming through that scale. On a percentage basis, you get a better benefit there from deletion of the fixed costs that are on absolute dollar basis, you got just the benefit of increased volume coming through there. And then as we talked about before, it matters all started go down to the operating margin levels. So we talked about some of the cost reductions coming out from the sale of the O&M and product development. Some of that comes out in 2021, but there’s also a lack of a little bit that comes out in 2022. So that’s going to see cost of sales and OpEx continuing to reduce as we go into 2022. And that again helps us down to an operating margin level.

Operator:

Our final question will come from Ben Kallo with Baird. Your line is open.

Mark Widmar:

Yes. I don’t think, first of all, that Alex said. Ben we’re not giving guidance for 2022 at this point that we gave some pretty strong indicators of what will drive 2022, which will be the volume – the production volumes as we referenced the new product of CuRe. The one thing I want to keep making sure that it’s representative there is, in all of 2022 volume will be CuRe. If you look at the one slide, which shows the energy uplift, there’s a meaningful energy uplift because of the improvement of long-term degradation. And that we sell energy, we sell back. And so that is important to understand. And we also referenced that there was a lot of interest and rightfully so when bifacial modules came out and they talked about a 4% to 8% energy uplift relative to monofacial modules, similar efficiency. If you look at where we are with our pure product, and on a lifecycle averages, on top of the initial Tesco and efficiency pop there’s another 10 percentage points of lifecycle energy through improvement of long-term degradation. And so you can take our products and even, again crystalline silicon bifacial that maybe even as a nameplate of 150, 175 bps better efficiency. And you’re going to find that over the life cycle energy profile, we’re going to outperform that in the range of call it, anywhere from 4% to 6%. And that’s compiling value fruition. So it’s the technology, it’s the supply improvement, there are production plan improvement that we’re talking about and continued reduction of our own internal costs, I think 2020, we’re not going to give specific guidance, but we gave enough information, I think to help people look because ROIC and then what 2022 should look like.

Operator:

We have reached the end of our time for the question-and-answer session. This concludes today’s conference call. You may now disconnect.

Operator:

Good afternoon, everyone and welcome to First Solar's Third Quarter 2020 Earnings Call. This call is being webcast live on the Investors section of 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. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon. And thank you for joining us today. I would like to start by thanking the First Solar team for delivering a solid third quarter. Our operational financial results were strong, and market demand for our Series 6 technology continues to be robust. We had a number of highlights since our last earnings call, including record Series 6 quarterly production of 1.5 gigawatt, solid bookings of 1.6 gigawatt, commercial production of 445 watt module, and earnings per share of $1.45 bringing year-to-date earnings to $2.65. Our Q3 financial results were driven by a modest second gross margin increase, as well as sales assistance projects. While significant uncertainty remain as a result of the COVID-19 pandemic. We are pleased with our year-to-date performance. As a result of the improved visibility provided by the closing a certain systems project sales. We are reinstating financial guidance for the fourth quarter of 2020. Alex will discuss our financial performance and guidance in greater detail. Turning to slide 3, I'll first discuss our Module segment performance. Year-to-date, we have produced 4.9 gigawatts, including 4.7 gigawatts of Series 6, with each factory averaging over 100% capacity utilization during the third quarter. Throughput was led by our international factories, which averaged 118% and 119% capacity utilization, September and October month to date. Domestically, our Ohio one and Ohio two factories are performing well, averaging 109% and 121% over the same periods. On a fleet wide basis in September and October month to date, megawatts produced per day were 16.9 and 17.9. Manufacturing yield was 96.6% and 97.2%. Average watts per module were 436 and 438 watts. And the ARC bin distribution from 435 to 445 watt modules was 92% and 96%. At the time of our third quarter 2019 earnings call, we had recently validated a new world record 447 Cad tel modules. Building on this, we have implemented these learnings and started commercial production of a 445 watt module. Continuing this momentum over the next few quarters, we expect our top bin to increase further to 455 watts. In September and October month to date, our Vietnam factories achieved a manufacturing yield of 98%. We continue to implement the learnings and best practices across the fleet with a fleet wide yield target of 98% for our current manufacturing footprint by the end of 2021. In the future, we see the potential to incrementally improve the obvious target. As noted previously, continued throughput, module watts and manufacturing yield improvements will help drive down our module costs per watt. Since the previous earnings call, we have not experienced significant disruption to our manufacturing operation from the pandemic. Much of our ability to mitigate the potential impact stems from our vertically integrated manufacturing process, diversified supply chain and differentiated Cad tel technology. By contrast, the largest PV model manufacturers globally produced crystalline silicon modules using a batch process technology with multiple process steps. None of these manufacturers are fully vertically integrated and realized to varying degrees on third party sourcing of poly silicon, ingots, wafers themselves. Productions of a single crystalline silicon module acquires each of these process steps several factories in multiple days. During the third quarter, several poly silicon produces experienced significant disruptions that hindered their ability to maintain manufacturing operations. This disruption coupled with a supply chain largely concentrated among a few Chinese companies reduces the available supply of poly silicon. The poly silicon price increase that follows resulted in downstream pricing pressures for wafer cells and modules, and consequently, for project developers. While the market for poly silicon has since improved, these events highlight the benefits of our vertically integrated manufacturing process, which enables price and delivery time certainty for customer orders within our contracted backlog. From a shipping and logistics perspective, the most significant impact to date remains the challenging global freight market. While limited freight capacity has increased spot rates, our logistics strategy which primarily relies on foreign shipping contracts has out reduced its impact. Regarding our capacity roadmap, we have received the major equipment required to commence commercial production at our 6 Series six factory in Malaysia. However, as highlighted during our second quarter earnings call, third party equipment vendors, as well as our US base associates are needed on site for tool installation. Currently, all non citizens traveling to Malaysia must have explicit written permission from the Malaysian authorities prior to arrival and are subject to mandatory 14-day quarantine period. While several vendors have received the necessary travel approvals, we're continuing to cooperate with the relevant agencies to gain approval for the remaining travel in a safe and timely matter. Delays in the approval process and compliance with required isolation procedures have the potential to impact the timing of commercial production and consequently, our full year 2021 production plan. Despite this uncertainty, we continue to evaluate opportunities across our existing manufacturing footprint to further increase our production and capacity entitlement. Touching on the System segment, our EPS results have favorably impacted by the sale of three projects in Japan and to in India. For the sale of our American Kings project in Q2, the Japan and India sales in Q3 and with a potential sale of the Sun Streams 2 project in Q4, 2020. We have a viable path to close each project sale contemplated in our original 2020 guidance from February. Starting to slide 4, I'd like to highlight the bookings and shipping activity for the quarter. In September, we were awarded the PPA for 180 megawatt AC solar project, with the option for future energy storage located in Arkansas. This project will support the clean energy needs of three General Motors facilities in the Midwest, starting in 2023. Building off of this, and the recent PPAs we assigned with Reagan and Dow, we are witnessing leading corporations taking bold steps to reduce their environmental footprint and doing so supported by technology developed and manufactured in the United States. As the only US headquartered company among the 10 largest PV module manufacturers globally, with a differentiated catch up technology using the lowest carbon footprint and water usage and a leading PV module recycling program that recovers 90% or more of the glass metals and Cad tel semiconductor materials. We are well positioned to address this market need. Additionally, it has been an active quarter for our systems business in Japan, as we continued success adding to our contracted backlog with the addition of two projects totaling approximately 80 megawatts. From the third party module sales perspective, 36 demands has been robust, among other bookings, as announced last week, we secured a 0.9 gigawatt of volume from this to energy for deliveries scheduled in 2021 and 2022. As part of this deal, our Series 6 technology will support six privates in Texas, a region that leverages our temperature coefficient, spectral response, and durability and quality advantages. As a US solar technology provider, we are proud to play a supporting role and district's commitment to achieving net zero carbon emissions by 2050. As highlighted during our Q2 earnings call, we've had a significant volume of 2021 opportunities that were in late stage negotiations, but were delayed due to uncertainty and a tax equity market. While, Alex will provide a more detailed tax equity market update. I would like to note that visibility into 2021 tax capacity has modestly improved. And we secure 0.5 gigawatts of 2021 opportunities since the previous earnings call. Additionally, demand in 2022 and 2023 has been strong, with 0.9 gigawatts of bookings since the previous earnings call. As a result of the recent systems and third party module wins net bookings since the previous earnings call totaled 1.6 gigawatts across 1.5 gigawatts of third party modules and 41 gigawatts systems bookings. Additionally, while not yet meeting all the requirements of a booking we have contracted 0.6 gigawatts subject to conditions precedent for expected deliveries in 2021 and 2023. So the project associated with General Motors PPA has been sold in conjunction with a model purchase order and has been recognized as third party module booking. Included these most recent bookings, we have 6.7 gigawatts go for deliveries in 2021 and 3.6 gigawatts booked for deliveries across 2022 and 2023. In Q3, we shipped 1.2 gigawatts, resulting in year-to-date shipments through the end of the third quarter 3.7 gigawatts. As mentioned during our Q1 earnings call in May, our shipping profile has been back weighted to the second half of the year. Despite this profile, our year-to-date shipments including the third quarter had been below our expectations from the start of the year, largely due to the combination for COVID-19 driven customer project and financing delays. Before delving into the specifics of our pipeline of bookings opportunities, it is important to highlight that some of the trends we are seeing, including the impact of COVID-19 on the near and long term growth of solar installations globally. In the United States, the EIA forecasts that approximately 14 gigawatts of utility scale solar capacity will be added in 2020. This strong demand is led by several states including Texas, California, North Carolina, Nevada, and Virginia. Each was near term development pipelines exceeding one gigawatt. The continued growth of utility scale solar despite the pandemic related headwinds face to the relative health of the US market. Internationally, the impacts of the pandemic have varied by market. While China remains the world's largest solar market, and installed capacity expect it to increase year-over-year. It is seen project completion timelines slipped due to the pandemic. Despite these challenges, the country's 14 five year plan scheduled to be launched in 2021 is expected to call for targets of at least 60 gigawatts per year of installed PV capacity, or approximately 300 gigawatts over the duration of the plan. In Europe, we anticipate a contraction in new install capacity as countries like France extend projects to the deadlines like six months to accommodate for COVID-19 related delays. In India, despite five months COD extension delays caused by a combination of the pandemic and the seasonal monsoons are expected to take a toll on the country's aggregate installed capacity this year. While the global PV industry has clearly not been immune to the pandemic's impact, some developments this year will shape the long term future of the industry. The first of these is a range of new policies designed to decarbonize electricity and mobility further while powering post pandemic economic recovery plans. Arguably, the most wide ranging example is the European Green Deal, which is aimed to transform the bloc into a carbon neutral economy by 2050 by decarbonizing electricity and transportation. The Green Deal which could make solar the number one source of electricity in Europe by 2025 is an example of how political leaders are bundling post pandemic economic recovery with decarbonization commitments. The other comment I would like to note is the growing recognition of the importance of self reliance, and a diversified solar supply chain in some of the world's biggest solar markets. A combination of factors including governmental policy, increasingly tense bilateral relationships, the pandemic, and pricing and supply volatility in the crystal silicon industry, has reignited the debate around risk posed by allowing a single country to dominate the PV solar supply chain. Responses have been varied with new rules that favor PV modules with a lower carbon footprint in South Korea, while India and Europe have renewed talks on domestic manufacturing. Earlier this month the United States, the President issued a proclamation revoking the exemption of bifacial panels from the application of selection 201 safeguard tariffs. Although this exemption is currently subject to a temporary restraining order, preventing the presidential bifacial exemption revocation from taking effect. The common thread, however, is an underlying desire to boost supply certainty and security, while safeguarding domestic manufacturing from unfair competition. In summary, we believe our investment thesis remains inviting as we are well positioned to benefit from the current dynamics in the solar industry. As shown on slide 5, our mid to late stage pipeline of opportunities remains robust. And it's increased 0.5 gigawatts despite bookings of 1.6 gigawatts since the prior earnings call. In terms of segment mix, this opportunity pipeline of 8.3 gigawatts includes approximately 7.7 gigawatts of potential module sales, with the remaining representing potential systems business opportunities. In terms of geographical breakdown, North America remains the region with the largest number of opportunities at 7.1 gigawatt; Europe represents 0.9 gigawatt with the remainder in Asia Pacific. As a reminder, a mid to late stage pipeline reflects those opportunities we believe, could book within the next 12 months, and is a subset of a much larger pipeline of opportunities which total 16 gigawatts of opportunities in 2022 and beyond. From a cost perspective, we indicated during our Q2 earnings call that our Vietnam factory we have achieved a 40% reduction relative to our 2016 Series 4 cost per watt. Building on this momentum as a reflection of our manufacturing execution, we have also achieved this milestone at our Malaysia factory during the quarter. Note as a reminder, our cost per watt metric includes sales rate and warranty. From build materials perspective, growing solar demand and the emergence of bifacial modules, which generally are dual glass, had contributed to pressures on the supply and cost of PV glass. Similar to our shipment strategy, our glass procurement strategy largely relies on four contracts, which has a substantially mitigated this impact today. From a fleet wide perspective, as a result of our continued manufacturing execution, we remain on track to achieve and potentially exceed our 10% cost per watt reduction target between where we ended 2019 and expect to in 2020. In Ohio, our third quarter core cost to watt produce continued to be higher than our international average. Our US manufacturing provides strategic benefits and over time, we anticipate a reduction in the cost for watt through the following initiatives. Firstly, by installing additional tools and optimizing the two Ohio factories into one consolidated platform, we expect to increase nameplate capacity slightly more than 25% to 2.4 gigawatts by the end of 2021. With this additional capacity, we are able to amortize the fixed cost structure including labor and depreciation over more watts produced. We are starting to see this benefit as reflected in October capacity utilization. Secondly, as previously disclosed, we have contracted a flow class supplier agreement with a producer in Ohio. We anticipate starting to receive the initial benefits of this agreement in Q4, and continuing into early 2021, with an expected reduction in the associated variable build and material costs. Finally, our manufacturing yield in Ohio was approximately two percentage points below the fleet average. Through the implementation of learnings from our international factories, we see a path to achieve similar yields at our Ohio factors. Through the implementation of these key initiatives among others, we anticipate our Ohio cost per watt premium over time to reduce to $0.02, including sales rate. Turning to slide 6, I would like to discuss the relative performance of our technology and the lab versus real world operating conditions. PV module lab testing protocols were developed in the early days of solar using standard test conditions of 25 degrees centigrade at a terrestrial standard spectrum. PV modules in the field, however, exposed to variable conditions, including heat, humidity, dust, and extreme weather events such as wind and hail. Each of these factors cause deviation from lab performance, with the effects varies by technology. Ultimately, lifecycle energy produced in the field is what drives project economics. And by analyzing the factors that cause divergence from laboratory performance, we can better understand the value proposition of our Cad tel technology. Firstly, as it relates to temperature, module device, operating conditions can exceed 70 degrees centigrade. Module watt is however is assigned at lab standard test condition of 25 degrees. And as panels heat up over the course of the day beyond this threshold, there's a corresponding decline in power. Series 6 has a temperature coefficient advantage relative to crystalline silicon, which is anticipated to increase further with our copper replacement module, meaning Cad tel responds more efficiently than crystalline silicon to real world temperatures. Secondly, due to the unique spectrum of light Series 6 captures our technology outperforms crystalline silicon on a watt for watt basis in humid environments. Thirdly, estimated useful life of PV power plants can exceed 30 years as a result, aggregation is an important driver of project economics. With the expected implementation of our copper replacement program, we anticipate a reduction in long-term aggregation beyond our current warranty of 50 basis points per year. We expect this innovation will enhance our competitive advantage by increasing lifecycle energy and project value for our customers. Finally, as it relates to by facial technology, while there is a potential for backside energy gain, the ground reflectivity, known as a [Veto] varies by geography, climate and season, and is often inversely correlated with hot and humid climates. Slide 6 depicts the relative lifecycle kilowatt hours expected to be produced by our equal watts of our copper replace Series 6 modules, which we call Series six CuRe, relative to leading crystalline silicon by facial modules. As a result of the aforementioned advantages, as compared to leading crystalline silicon by facial modules, we estimate that our Series 6 CuRe module can produce up to 10% more life cycles kilowatt hours per kilowatt install, in climates with extreme heat and humidity, including Brazil, Central Africa, Southeast Asia, India, and southern United States. Importantly, when implemented, our CuRe product is expected to be well positioned in other key markets with more moderate climates including France, Spain, Japan, and the Midwestern United States. We expect to begin delivering 36 CuRe models in the second half of 2021. Turning to slide 7, I would like to review a framework that highlights the factors that influence ASPs, starting with bifacial. While, backside energy gain is accretive to ASP, with only a modest increase to manufacturing cost a lot, the downstream costs related to additional balance of system structures, increased vegetation management, and higher cost of capital associated with our [Veto] uncertainties are partially offset to this ASP benefit as it relates to crystalline silicon with larger form factors, the potential ASP benefit largely stems from the dilution in the manufacturer's fix bill of material costs rather than an increase in energy density. This potential cost reduction, which may be passed through to the customer is partially offset by the downstream cost of additional support structures, physical handling challenges with oversized modules, increased insurance premiums, and risk associated with cell cracking and wind loads. As relates to our copper replacement Series 6, once implemented, we anticipated ASP accretion due to increase efficiency, improved temperature coefficient, and a significant reduction in long-term aggregation. Importantly, this innovation is driven by efficiency improvements, which results in dilution of our variable and fixed bill of material costs. We expect to capture this ASP accretion as a technology does not significantly impact balance of system and development costs or project risks. Finally, it's important to note the opportunities with our Technology Roadmap, with cell efficiencies entitlement effect in excess of 25%, coupled with the energy advantages of Cad tel, we believe the outlook for our technology platform remains strong. In support of our roadmap over the over the coming quarters, we anticipate certifying a new world record for Cad tel. I'll turn the call over to Alex who will discuss our third quarter financial results and fourth quarter guidance. Alex?

Operator:

[Operator Instructions] Our first question comes from Philip Shen with ROTH Capital Partners.

MarkWidmar:

I'll let Alex take the last one booked in 2021, 2022 and 23. So I'll try to take the other three because he can gather those numbers. So your question is around CIGS and where to the extent that we are looking at that as a technology or really any technology because at the end of the day core module, technology manufacturing company, that's what we do. And we need to continue to find ways to differentiate ourselves on a technology basis and to find ways to be as disruptive as we can with our technology and always increase advantages relative to crystalline silicon and whatever the ultimate competition may be. We've looked at things in the past. We've looked at the crystalline silicon and mono crystalline silicon. We look at perovskites; we look at everything and as it relates, if your question is CIGS is -- an indication that we don't have confidence cad tel that's not anywhere close to the reality. Cad tel in my mind will always be advantaged relative to six. And we believe it has a roadmap to be advantage relative to crystalline silicon. But the reason that we would look at crystalline silicon, or CIGS or perovskites, or organic TV or anything else that may be out there is how do you complement the two? And we've mentioned this before that we believe over time, that multi junction type of technology will evolve into the marketplace. And cad tel in of itself is a very good top so from a standpoint of having a high band gap. So it captures a significant portion of the overall sun spectrum. And when you need that as a second cell underneath that would be what's complimentary to that. And could it be six? Could it be crystalline silicon? Could it be processed at some form or fashion? And so we're always going to look at that. We believe it's the evolution of technology that will happen in the future, we've highlighted in previous calls too that we are reinvigorating our advanced technology team. And so to the extent that we need to look at different materials, different semiconductors can be complimentary to cad tel, we'll continue to do that. But I don't look at the CIGS or really any of those other technologies as is replacing cad tel. The core will be of our semiconductor and overall device will be cad tel. The question is, is there something else that becomes complimentary with it, and we need to look at all options that could be out there. As relates to the expansion in a gigawatts? I mean, yes, we have I think indicated, our nameplate would be about eight gigawatts at the end of 2021. We are in the last phase of our Series 6 transition with our second factory in Malaysia with startup and current plans will start up in Q1 of 2021, we are looking beyond that. And as we've always said, we've got a balanced business model between growth, liquidity and profitability. And we obviously understand the value of growth and the leverage against fixed costs and flow through contribution margin. And so we are evaluating options and we will look at where we can create the next disruptive lowest cost factory. So, as we continue down our journey with Series 6, one of the things that we pass ourselves with, probably about nine months or a year ago is what's the factory of the future look like? What's the next generation technology in terms of driving the lowest cost for our cad tel platform? And so we have been doing that and trying to find a way to create that disruptive, lowest cost from the fleet factory, which under that construct, most likely would not be in the US for the reasons that we've mentioned. And we believe we have relative representation here with costs almost 2.5 gigawatts in the US. But other markets, we would look to, India could be one; we've talked before about potentially, our 15 factory in Germany started out as an easy way to get to market quickly and leverage that factory that we closed down almost a decade ago. So those are things that we're looking at. And we also believe that as we've had indicated, I think, Alex mentioned in his prepared remarks that freight is basically 6% of gross margin right now, 6% of the ASP effectively. And so getting closer to market and driving down your freight costs is an advantage that we continue to look to. So being in a market that can consume 2.5 to 5 gigawatts of volume on a recurring basis, it would be important. So those are the many different factors that we look at as we think about expansion. And but just want to make sure it is clear that is on the agenda of things that we're looking at this point. So why security in any impact with what's happened with the China, the latest evolution now being on the potential use of forced labor and implications of data and potentially product being banned in the US. It's one of many different dimensions that a lot of our customers have as it relates to relying on China in long term and the uncertainty around that. I don't know if it would have increased meaningfully over the last month, it's just one of many different concerns that they've had, I mean, even with the discussion around bulk power systems and potential implications around that. The modules have been looked at, is there a risk of that can be impacted. The discussion of extension of the 201 tariffs; there's many different things that come into the mix. And a lot of our customers here in the US in particular want to do business with an American company. They want to de-risk their supply. It's related to ability to deliver against commitments and any uncertainties that could be imposed upon the Chinese supplier and some of the issues that are coming up as you mentioned with forced labor. So I don't know if it's changed significantly in the last month, it clearly is top of mind. And it's just one of many different factors that all of our customers think about when they have to rely upon their Chinese, our Chinese counterparty as a supplier. Alex?

Operator:

Our next question comes from Brian Lee with Goldman Sachs.

AlexBradley:

I'll start on the gross margin, if Mark also comments on the cost reduction beyond that. So you're doing basically the right math with the reported module segment gross margins about 29.5 and you've got three big things that moved in there, by reduction our warranty liability, about $20 million, but the good guy, reduction in the end of life recycling about $19 million also good guy, then you got an impairment charge about $17 million. That's good again, so we net all of those, you've got about $21 million, or about five percentage points, you take that down to about 24.5. And then we said that within the overall margin, we had about a $6.5 million, or 1.5% negative associated with Serious 4, you add that back in, you get to about 26%. And then on top of that, we did have some COVID charges in that number, there's about $3.5 million of COVID charges, you back that out again, you're going to be another 50 to 100 basis points. So somewhere around 26.5 to 27 around the Series 6 number. So yes, we're a little ahead of where we expect it to be. And part of that as a function of how well the factories have been running. As Mark mentioned in his prepared remarks, we've now managed to get to the cost reduction target that we expected in our high volume manufacturing by the end of the year. In Q3, we're already there on Malaysia site we already achieved that last quarter in Vietnam. So running a little ahead there. In terms of where we think we'll be by Q4, we are going to be about 27.5 and 28 gross margin on Series 6 is the number we're guiding for Q4 so that one held roughly steady from where we were last quarter. And then in terms of cost reduction, beyond that, we are not giving guidance out through 2021. Mark, if you want to comment anything?

Operator:

Our next question comes from Ben Kallo with Baird.

MarkWidmar:

So from, Ben, where we ultimately -- what I said in the script was that where we are on our trajectory right now for our two facility plants in Ohio is to drive the nameplate capacity up to 25% above than we were originally launched that. The objective would be to drive it effectively to about low 30s. So there's, let's say there's another five to about eight percentage points of incremental utilization that we would like to get out of all the factories. So first, we got to get everything up to 25%, right. We're not necessarily there yet, you can see by what we're running, we're -- call it 120, I think was the best that we highlighted. Right, now we've got a path to get everything up to around 25%, near term, with a goal of getting it up to low 30s, calling around 30% to 33%, which would be another five to eight percentage points above for our near term objective is, and a little bit of work still to be done there. But I've been very impressed with the team's capabilities making that happen. On the efficiency side, as you indicated, where are we going with the technology? I mean what I did say to someone, one of my very last comments was the entitlement at the cell level for cad tel is 25% plus. And that would translate into something close to call it a 23% or so efficient module, based on normal conversion between cell to module. We're in the process right now of validating. And hopefully, we'll have in the next few quarters, a new record for efficiency with I don't know if there'll be a cell or module. So looking at what we end up doing on that, there are some items on our roadmap that would really be beneficial to help validate that through demonstrating that either with a cell or module, which by default, will then drive to a record efficiency. So there's still more room to go yet on to core technology and driving to higher level of efficiencies. The other one that I mentioned that, again, it's complimentary, and it's in. It's a combination, this multi junction technology that we talked about, which would take efficiencies even above and beyond kind of that profile. As I mentioned because now you have two cells that are harvesting the overall photons and converting them into electrons, which you say that whatever you can do at the top cell level capability would be further enhanced with the bottom cell. And so the technology and efficiency can go even beyond kind of those numbers that I represented around theoretically, right. So there's still ways to go yet on the technology, and we're working very hard to make sure we can realize those benefits over the next several years. On a CapEx basis, with this, I mentioned, I alluded to this, kind of what is the factory of the future, and what is the most disruptive, lowest cost factory that we can create, starting with a blank sheet of paper that also drives down the CapEx investment relative to what we initially communicated with Series 6, so that can drive it down probably close to 15% to 20% on a CapEx basis, so we have a roadmap to drive more CapEx out, and to do more efficient, so therefore, we can obviously, the cost of deploying new factory would CapEx per watt basis will be lower than when we originally launched at, which is an objective that we've had. And it is tied to the realization of the systems energy services and proceeds so, it's not -- they are two independent things. I mean, there's not a constraint, you can see where our balance sheet is right now that ability to continue to invest and in the capacity and the roadmap that we have in front of us, that there's not any linkage, per se, to any proceeds we've received from assistance business or the energy services business.

MichaelWeinstein:

Hi, guys. Can you talk about what would drive capacity as in a particular regions or existing locations as you've in the past few years, this is driven by a move from the Series 4 to Series 6. Going forward, is it demands growth, or something else that drives it?

Operator:

We completed the allotted time for questions. This concludes today's conference call. You may now disconnect.

Operator:

Good afternoon everyone and welcome to First Solar's Second Quarter 2020 Earnings Call. This call is being webcast live on the Investors section of 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. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon and thank you for joining us today. We continue to hope each of you are managing well as the pandemic continues. As we emphasized during our May earnings call, our COVID-19 response centers on balancing our top priority of safety with meeting our commitments to our customers. This approach together with our associates' dedication and the strength of our differentiated business model enabled us to deliver solid financial results for the second quarter and year-to-date with earnings of $0.35 per share and $1.20 per share respectively. Alex will discuss our results in greater detail. Starting on slide 3 with our module business, we remain pleased with our operational performance, with strong metrics across the board. Year-to-date, we have produced 3.5 gigawatts including 3.3 gigawatts of Series six modules. Fleet-wide capacity utilization has remained over 100% for the month of May, June and July. The fleet-wide capacity utilization is led by our international factories in Vietnam and Malaysia, which are progressing towards their previously demonstrated capacity utilization peak of 120% of initial design nameplate. Domestically, our Ohio one and two factories experienced 2.5 days of idle production in June, but still achieved respective utilization rates of over 100% and 94% during June. The unplanned downtime was caused by railway logistics constraints, which resulted in a delivery delay of certain bill of materials supply. As a result, we accelerated previously planned factory upgrades from the third quarter to minimize any impact to our full year production plan. On a fleet-wide basis in July megawatts produced per day was 15.9 megawatts. Manufacturing yield was 96.4%. Average watts per module was 435 watts and the ARC bin distribution from 430 to 440 modules was 98%. Vietnam had a particularly strong start to the quarter with capacity utilization of 114% and manufacturing yield 100 basis points above the fleet average. We are encouraged by the operational start to the quarter and the momentum it provides to further improve our cost per watt. Regarding our capacity road map, we remain on track to commence commercial production at our second Series six factory in Malaysia in the first quarter of 2021. However, third-party equipment installers as well as our U.S.-based associates are subject to international travel restrictions as a result of COVID-19. While we continue to work with relevant agencies to support this essential travel in a safe manner, incremental delays resulting from these restrictions may impact the timing of initial production. Since the previous earnings call, we have not experienced any significant operational disruption from our suppliers' inability to maintain manufacturing operations. Much of our ability to mitigate this impact to date stems from our supply chain strategy, which emphasizes corporate and geographic diversity of supply. In certain situations where we source critical raw materials from a single vendor, we ensure the product can be manufactured in multiple geographies. From a shipping and logistics perspective, the most significant impact to date is the consolidation of shipping routes, which has resulted in constrained capacity. We have factored this into our logistics strategy and are working to mitigate these impacts. Separately, port congestion has recently improved in Europe and the United States although we continue to monitor this risk. Turning to our systems business on slide four Our EPS results were favorably impacted by the successful sale of our 123-megawatt American Kings project. We are pleased with this result, capturing competitive market value for this project despite capital market dislocation. From an EPC perspective, in July, we declared substantial completion on the last remaining project being constructed by First Solar EPC. This project has experienced a combination of unforeseen weather and COVID-19-related delays and incurred significant additional costs during the quarter which then first unfortunately weighed on our Q2 results. Alex will later discuss the P&L impact as well as provide an update on the capital markets for system projects. With regards to our U.S. project development business, as discussed on our Q1 earnings call, the COVID-19 had affected the timing of our evaluation of strategic options for the business. In June, however in collaboration with our financial advisers, we made the determination that the market is now in a better position to evaluate potential partnerships, sales or other transactions. Accordingly in June, we formally launched this process. We do not intend to discuss further developments except to the extent the process is concluded or is otherwise deemed appropriate. With regards to our O&M business, during the third quarter of 2019 earnings call, we indicated that we are evaluating the long-term cost structure competitiveness and risk-adjusted returns of the business. In addition during our fourth quarter 2019 earnings call in February 2020, we discussed that we were continuing to evaluate our O&M strategy to ensure that this business is able to achieve its full enterprise value potential and continued market leadership. Our original entrance into and continued presence in the O&M market was a natural extension of our utility-scale solar development and EPC capabilities. It helped create a vertically integrated systems platform which allowed us to capture an additional profit pool. However, with our transition to a third-party EPC execution model, the increase in the maturity of the U.S. Solar O&M market and our evaluation of strategic opportunities for our U.S. project development business the strategic thesis behind our O&M business has changed. From a financial perspective as we indicated during our December 2017 Analyst Day, our contracted O&M gross margin at the time was above 30% largely as a function of legacy contracts. We also indicated that as we expect the gross margin for new O&M business to decline to a range of 10% to 30% depending on the risk profile and the contract tenure. Relative to this expectation with increased competitive pressure and declining PPA prices, we have seen new contracts trend towards the lower end of this range. While we have been able to partially offset the impact of this gross margin percentage decline by increasing the scale of our O&M portfolio in order to further optimize the business and maintain our market-leading position, we would need to continue increasing the business scale, as well as enhancing the range of O&M product and service offerings. To justify incremental capital investment in O&M, the financial returns would need to exceed those available from further investment in our module business. Earlier this year, we received a compelling unsolicited offer to acquire our North American O&M business from NovaSource Power Services, a portfolio company of Clairvest Group, a strategic investor who is scaling a market leading solar O&M platform following their recent acquisition of Sun Power's utility-scale O&M business. We believe their strategy for scaling and growing the business will enable the O&M enterprise to reach its full potential. Accordingly, this week we signed an agreement to sell our North American O&M business. We believe this transaction captures compelling value will maintain our history of high quality customer service and with additional scale and capital will further enhance the capabilities of the business. Upon closing of this transaction, which is expected by year-end approximately 220 First Solar O&M associates are expected to join NovaSource Solar O&M platform. Turning to slide five. I would like to highlight our bookings and shipment activity for the quarter. In this challenging economic environment, demand for our Series six product remains strong. Since the prior earnings call, our net bookings are 0.8 gigawatts. These new bookings include approximately 0.3 gigawatts of third-party module sales and 0.5 gigawatts of systems bookings. In addition, 0.4 gigawatts of these bookings are for delivery in 2022. Despite our success in booking these additional volumes in the U.S., we believe the current uncertainty of tax equity availability for projects scheduled for completion in 2021 and beyond, as well as the uncertain status of the legislature solution such as the ability to receive direct cash payments in place of direct investment tax credits to alleviate this tax equity availability constraint is a headwind impacting our ability to book certain opportunities in late-stage negotiations. We currently have approximate 0.9 gigawatts of opportunities in late-stage negotiation with terms, pricing and conditions near final agreement. We believe the current uncertain tax equity environment has contributed to the delays in finalizing these negotiations and accordingly has delayed our ability to book these volumes. Note, although not booked these volumes are reflected in our late-stage opportunity pipeline. Strong Series six demand coupled with First Solar strength as a trusted partner underlines our current bookings and late-stage opportunities, which when combined totaled 1.7 gigawatts. During the second quarter, we shipped 1.2 gigawatts, which was approximately 300 megawatts below our expectations. Delays in shipments were due to a combination of previously mentioned port congestion, project site labor constraints, and interconnection and financing delays. After accounting for second quarter shipments, our contracted backlog remained strong with future expected shipments of 11.9 gigawatts. Our ability to forward contract module supply creates a position of strength, which enables pricing discipline and helps to mitigate the financial impact of variable spot pricing for solar modules. We remain effectively sold out through 2020 with only two gigawatts left to sell of our expected 2021 supply with a 21 mid- to late-stage pipeline of 3.8 gigawatts, which includes the previously mentioned 0.9 gigawatts in late-stage negotiations we have a path to fully contract our 2021 supply plan over the next few quarters. With regards to our systems booking in July, we were awarded two PPAs for projects located in Ohio and North Carolina that support the clean energy needs of a Fortune 500 company starting in 2023. Separately, the building of the recent PPA we signed with Dow prior to the first quarter earnings call, we continue to see strong demand from corporate customers who are becoming increasingly proactive in reducing their carbon footprints. As America's solar company, we're proud to support the renewable energy objectives of corporations with our Series six technology, which has the lowest carbon and water footprints available in the market today. As a reflection of this sustainability leadership, we are pleased to announce earlier today our commitment to the RE100 initiative, joining the likes of Apple, Facebook, Kellogg, and Microsoft all customers of clean energy generated by First Solar technology. In joining this initiative, we are targeting powering all of our U.S. operations with 100% renewable energy by 2026 and our global operations by 2028. As shown on slide six, our mid- to late-stage pipeline of opportunities remains robust, and has increased by 0.3 gigawatts despite bookings of 0.8 gigawatts since the prior earnings call. In terms of segment mix, this opportunity pipeline of 7.8 gigawatts includes approximately 7.3 gigawatts of potential module sales with the remaining represent potential systems business opportunities. In terms of geographical breakdown, North America remains the region with the largest number of opportunities at 5.9 gigawatts. Europe represents 1.7 gigawatts and the remainder in Asia Pacific. As a reminder, our mid to late-stage pipeline reflects those opportunities the each sales could book within the next 12 months and is a subset of a much larger pipeline of opportunities, which totaled 15 gigawatts of opportunities in 2022 and beyond. Turning to slide seven. I would like to provide an update manufacturing cost and technology outlook. Overall, I'm very pleased with our manufacturing execution especially in light of the current environment. Much of our ability to thus far mitigate the operational impact of COVID-19 stems from our proprietary manufacturing technology, which enabled us to produce a cad tel module within a single factory in a matter of hours. Our fully integrated manufacturing process is a competitive advantage relative to crystalline silicon technology, which is manufactured over the course of several days across multiple sites. While we have largely mitigated supply chain disruptions to date, the impact of the pandemic experienced in other industries underscores the importance of supply chain diversity. As the only U.S. based company and only alternative to crystalline silicon technology among the 10 largest solar module manufacturers globally, First Solar provides a domestic supply security and enables United States and global markets to ensure -- to reduce their overreliance on imported and government subsidized panels from China. As we look to the future, we believe a differentiated technology and advantaged cost structure and a balanced perspective on growth will enable us to continue succeeding in the global marketplace. By the end of 2021, we expect to have eight gigawatts of Series six nameplate capacity across factories in the United States, Malaysia and Vietnam. Note this capacity is over 120% higher than the original nameplate envisioned when we launched Series six. As we evaluate the potential for future capacity expansions, we may seek to further diversify our manufacturing presence, although we have made no decisions at this time. Several factors in this evaluation include

Operator:

[Operator Instructions] Our first question comes from Philip Shen with ROTH Capital Partners. Your line is open.

Mark Widmar:

Yes. I'll take the bookings ASP and I'll let Alex handle the margin question. So in terms of the bookings between earnings calls, which is basically 0.8 gigawatts, 400 or so of that was with our systems business which is would be for shipments in 2022, and then the rest effectively is 2021. But what I would expand beyond that, Phil, and we tried to highlight in the call we have about 900 megawatts that sits in effectively final stage negotiations. In some cases, ready to sign a PO. In some cases, subject to some CP. In some cases, a letter of intent with exclusivity locking in the module volume and the module pricing. So against that 900, we've had agreed pricing on all that. It's just -- again, with the uncertainty and these are all 2021 shipments, with the uncertainty of the availability of tax equity, with the uncertainty with any type of legislative fixed direct pay type of structure, people are being a little concerned around locking in firm contracts and leaving certain -- some on the CPs open to allow them enough time to assure financings in place and the like associated with the project. These are projects that are committed. These are projects that have PPAs, their sites, they're ready to go. They're just finalizing some of the financing components to ensure they have everything locked and loaded around the project. If you include those projects, those projects also have pre-annual ASPs. So if you look at the volume that we have for module only, it's up 300 or so, 400 or so for 2021 plus that additional 900. They all are still very solid ASPs. We are in advantage situation from the standpoint as we said. We only have about 2 gigawatts left to book. Our customers know that. There are biases and preferences to do business with First Solar and certainty of supply and ability to deliver. And so we have customers engaging with us proactively, so we can lock up that supply. So if I lock up that 900 right now late-stage negotiations, I only have about one gigawatt left for 2021. And our customers want to ensure that security and get that in place for that supply. So my ASPs are still holding reasonably firm. We're happy with the ASPs. Behind those -- there's two more follow-up orders that almost get to one gigawatt that are associated with that 900 that are in late-stage negotiations with two separate customers. They have follow-on commitments they would like to make in 2022. So I can give you a feel of where that pricing is right now. It's in line with what we said in the last call. We had a large order which had carried volumes into 2022. It did have a two handle. It was in the high twos. It also had adjusters for bins. It had adjusters for module degradation, if we do better than we had guided to. So I look at what we have for last quarter that was booked plus what we currently are engaged in the market with around pricing in 2022. We're still pretty happy with how that's shaping up. A lot of things can move and change. Clearly, there's got to be some solution to tax equity and capacity, because that's going to constrain the market could have adverse implication around projects. But at least from a bookings and relative ASPs, we're pretty happy -- given the challenges in the current environment pretty happy with what we're seeing.

Operator:

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

Alex Bradley:

So as of now there's no ramp costs in Q3, Q4. The only ramp that we saw is $4 million in Q1 and that's the full expected ramp for the year. In terms of the expansion, it's still unknown. I mean, the number we're giving you here assumes we may still have some COVID-related costs impacting us in Q3 and Q4. So I think you can look at it really as a 300 improvement from the 25 as a starting point.

Michael Weinstein:

Hi, guys. Can you hear me right?

Michael Weinstein:

Okay. Great. You mentioned that Raffi is going to be working on advanced research and development to create the next disruptive technologies beyond Series 6. Is there some preview of that you could talk about at this time? And are there limits to the levels of efficiency that you can get out of the technology?

Operator:

Our next question comes from Ben Kallo with Baird. Your line is open.

Mark Widmar:

So the first -- I'll take the O&M question and then the -- in terms of the 2 gigawatts or 21 relative to what the assumption is for the supply plan. And then Alex can talk about kind of ramp costs in general and then also decommissioning costs related to Series 4. Ben, look on the O&M business, especially now that we no longer have the EPC capability we'll move to a third party. We've kind of separated the development business from the O&M business. And the reason I say that is that a lot of the EPC providers that we engage with also want to provide O&M. So now we created kind of a competitive tension around captive development with maintaining the O&M even though we're using a third party to do the EPC. The EPC wants to somewhat -- they have guarantees and other warranties that they provide post COD and they also -- a number of them would prefer to do O&M for that horizon. And some want to do it strategically longer term. So for us because the separation of EPC from the development business has created this natural separation between development and O&M. So it's not as unnatural as it may appear. It's maybe unnatural from how we first evolved. As we said there's -- the capabilities and the cycles of innovation that's evolved in the O&M space today is much different than the journey first started off and if you have those full capabilities. So it's kind of separated through that for that reason. And as we look at strategic options for the systems business even if we end up partnering or doing something different retaining the interest in the development business, it's not as critical to have the O&M capability as it was years ago. And to some extent what we prefer to even do today is just do the development get a cycle -- site excuse, me to notice to proceed, staple that with a module agreement and then step out of the equation. I really don't want to deal with the third-party EPC. I just want to -- where we create the greatest amount of value turning keys over to third-party EPC and sell down into a long-term owner. So that's the process around O&M and how we can separate it. The 2 gigawatts of 2021 we'll have nameplate capacity in 2021 of 8 gigawatts. Our supply plan right now is about 7.5 gig. I think we indicated in prior communication that we view between 7.3 and 7.7. So it's -- the midpoint is 7.5. That's kind of what we're tracking to right now. So two gigawatts left to go out of 7.5. So we've got 5.5 booked. I got almost half of that 2 gigawatts in late-stage negotiations with negotiated pricing finalizing terms and conditions. So we have a pretty good line of sight to make sure we can sell-through that 2021 pipeline.

Operator:

Our next question comes from Eric Lee with Bank of America. Your line is open.

Alex Bradley:

Julien just to clarify on your first question you said lower end of systems. Can you just clarify what you mean by that?

Mark Widmar:

Yes. Well first I will and then you can take maybe a little bit on that too. But I think what we said just so we're maybe clear is we did reference the O&M business that we gave a range of gross margin expectations that we previously had established for O&M and the -- now range was 10% to 30% when we based our Analyst Day in 2017. We indicated that what we've seen in the market is that the actual gross margins on the O&M business have trended towards the lower end. And this combination two things increased competition plus lower PPA prices. So PPA prices have continued to come down. And really in order to drive to a lower LCOE everything whether it's the module, the inverter, the O&M, operating expenses whatever it is all have been kind of under pressure. And so that was the comment I think we referenced towards the lower end of the range around O&M and we are seeing that come down part of the pressure because of lower PPA prices. Look I think the tax equity and the implications that it has availability is going to be a challenge. So it's going to be mainly available for high-quality projects plus because it's a constraint I would expect pricing to actually increase which actually works against the PPA prices and potentially would require higher PPA prices in order to create market-clearing prices. But I'll let Alex talk more about tax equity and what we're seeing in that regard.

Mark Widmar:

Yes. I think the other question you had Julien was around volumes in 2022 and 2023. And how do we think about, booking that volume up relative to a potential extension of the ITC, as an example. Between 2022 and 2023, I think where we sit right now, a little bit north of three gigawatts or so that is booked in that window. We got another about one, gigawatts that's in late negotiations as well, that's got committed pricing around it. And that's -- so call it four gigawatts that we've got a stake in the ground for -- during that window. That's against about 16 or so gigawatts of supply that we'll have over that period of time. So maybe we're 1/4 of that somewhat committed to or locked into either booked or with commitment around pricing. It's pretty -- we still have room to go. And really we still will be very patient in that window. We'll look for good pricing. So knowing where our cost curve is going to go and where we can capture the best pricing. Play to our strengths like, we always do hot human requirements. Texas being another area that we talked to -- talked before about given cell cracking issues and inability of some of our competitors to get projects underwritten by insurance carriers or just the general cost of insurance being significantly higher. So there are a number of things that we do in the U.S. that play to our strengths, evolving that with our new technology with our copper replacement product. And if we can capture good value for the technology start securing up some of that volumes in that window, clearly we'll do that. But when I think about four gigawatts relative to the supply of 16, I got lots of optionality still left that if there is an extension on the ITC that creates an additional peak in the curve. And potential more stable and better pricing environment we still have to take advantage of that as well.

Colin Rusch:

Hi. Thanks so much, guys. Are you seeing the impact of lower cost capital start to creep into any of the PPA bids and some of the project economics at this point? Are you seeing PPA prices come down at all? Are you seeing a little bit of give in some of the project-level economics since you're talking to customers?

Operator:

This ends our time for the question-and-answer session. This concludes today's conference call. You may now disconnect.

Operator:

Good afternoon, and welcome to First Solar's First Quarter 2020 Earnings Call. This call is being webcast live on the Investors section of 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. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon, and thank you for joining us today, especially in light of the extraordinary situation that we're all facing. I hope each of you and your loved ones are safe. I want to begin by discussing the country's response to the COVID-19 global health crisis, including the impacts we are seeing on our business and the actions we are taking to support our associates, customers and partners. Turning to Slide 3. Firstly, and most importantly, we are committed to our associates, customers and partners around the world. We are working to navigate this unprecedented challenge together with safety as our top priority. At this time, the majority of our office-based associates are working from home to minimize large concentrations of people at our offices and manufacturing facilities. As a technology manufacturing company, we do require certain associates to be physically present at our production facilities. In these locations, we have implemented stringent health and safety protocols that include, among other measures, temperature screenings at facility checkpoints, a mask requirement for all our manufacturing associates, a round-the-clock sanitation of high-touch areas and social distancing. In order to further protect our associates, we have also implemented strict limitations on third-party visitors to our offices and manufacturing sites. Through these practices, we strive to protect the well-being of our global associates and ensure that our technology is safely manufactured and delivered to our customers. In meeting the clean energy needs of the global economy, we will continue to balance our top priority of safety with delivering value to each of our stakeholders. We recognize the challenges that our associates and their families are facing in this period of great uncertainty. And we're very proud of the dedication, focus and commitment that we witnessed from our associates over the past months. It is during challenging times like these that our culture of agility, collaboration and accountability and the strength of our differentiated business model shine through. Turning to Slide 4. Our core operating principle is to endeavor to create shareholder value through a disciplined, data-driven, decision-making framework that delivers a balanced business model of growth, profitability and liquidity. With this guiding principle, we will continue to adapt our business model to remain competitive and differentiated in a constantly evolving market through our points of differentiation, which include a competitively advantaged cad tel thin-film module technology, a vertically integrated continuous manufacturing process, an industry-leading balance sheet strength and a prominent sustainability ideology. We have created a resilient business model that better enables us to manage through periods of uncertainty, including the current environment. The strength of our business model is reflected in our committed Series six road map capacity of approximately eight gigawatts and our multiyear contracted backlog of over 12 gigawatts. We are pleased with the contracted backlog we have built as it provides increased visibility into our future sales, reduces financial exposures to spot pricing and aligns our capacity plan with future demand. Turning to Slide 5. I will next provide an update on our module and systems businesses. On March 26, we provided a manufacturing operations update in light of recent developments related to the COVID-19 pandemic. At that time, we indicated our manufacturing facilities in the United States, Malaysia and Vietnam were committed to operate under their respective circumstances and government mandates. Through today's earnings call, we continue to manufacture Series six under their local government orders, which include the following. Firstly, on March 22, the state of Ohio issued stay-at-home order, which was extended to May 29. Recently, the Ohio government rolled out a plan to gradually reopen other parts of the state's economy, while still minimizing the spread of COVID-19. Through today's earnings call, our Ohio facilities have been permitted to operate as an essential business under the stay-at-home order. However, with the closing of schools and the associated day care needs as well as other factors, we have experienced a decrease in our production workforce. In March and April, our Ohio one site operated at full capacity. However, the temporary decrease in labor availability yielded an approximately 25% reduction in capacity at our Ohio two during these months. Starting in May, essentially the entire manufacturing workforce has returned, and we expect Ohio two will return to full capacity. During this period of transition, we incurred some incremental costs for overtime and supplemental pay. Secondly, on March 18, the government of Malaysia enacted a movement control order, which was extended to May 12, and from which First Solar was exempted as an essential business. Under the order, the workforce at the factory had to be reduced by 50% to improve social distancing while maintaining full pay for all associates. In order to comply with the order, we elected to maintain Series six production while halting Series 4. We have anticipated discontinuing Series four production during the second quarter of 2020. Prior to the movement control order coming into effect, we had produced approximately 2/3 of our expected 300 megawatts of Series four production for the year. Taking into account inventory on hand, future expected warranty requirements and following engagement with certain customers to replace Series four with Series six modules, we have elected to accelerate our Series four shutdown and will not restart Series four module production. However, due to the movement control order, we have experienced some delays in completing the exit process of our impacted associates. However, despite operating under the reduced workforce reduction, through labor optimization and a work-from-home strategy for all nonessential Series six manufacturing associates, we achieved Series six capacity utilization rates above 100% at our factory in Malaysia during March and April. Thirdly, on April 1, the government of Vietnam ordered a period of nationwide isolation, which required compliance with government-mandated safety criteria in order to continue manufacturing operations. We implemented all requirements and continued to operate at over 100% of nameplate capacity during March and April. A significant achievement to highlight, the team's commitment to safety was recognized by government auditors as we achieved the best safety score out of the 15 large manufacturing facilities audited in the Ho Chi Minh City area. Our operational performance to date has been facilitated by our strong supply chain partnerships, which have enabled us to minimize disruptions to raw material supplies to the factory. Throughout the crisis, the vast majority of our third-party suppliers have continued to serve us. In cases where we have had challenges in our supply chain, we have substantially mitigated those disruptions through active dialogues with our vendors and implemented implementation of contingency plans. To date, delays related to procurement of raw materials and components have not exceeded a week. From a shipping and logistics perspective, we have seen disruptions in global cargo routes and capacity. Despite sailing cancellations, port congestion and staffing reductions, the impact on inbound raw material deliveries have so far been limited. We continue to work with our partners and customers to mitigate these disruptions. Finally, with regards to customer deliveries. In several instances, our customers are experiencing delays in their permitting and EPC process, which is affecting our ability to - for them to receive our module. In all cases, we continue to collaborate with our customers and provide solutions to challenges they are facing as a result of the current environment. We are committed to meeting the needs of our customers, while the delivery date changes may impact the timing of revenue recognition on our module sales. Turning to the systems business. With regards to early stage development, the most significant impact of the pandemic is the inability to hold public gatherings, which are often a step required in completing the permitting process. Accordingly, our development team is evaluating the potential to utilize virtual meetings to fully satisfy these requirements. From a PPA standpoint, we have continued to make significant additions to our contracted pipeline in the United States and Japan. Since the prior earnings call, we have been awarded three PPAs for projects located in Tennessee, California and Texas across a diverse set of utility, CCA and corporate offtakers. These projects secure system volume in the time period that captures the full value entitlement of our ITC safe harbor strategy and copper replacement program. Additionally, these projects have module shipment dates based between 2021 and 2023, which importantly extends our contracted backlog into later years. From the construction standpoint, we are nearing completion of the last remaining projects being constructed in-house by First Solar's EPC and the remaining projects currently under construction being financed on our balance sheet and executed by third-party EPC partners. While our construction projects have experienced some combination of constraints related to COVID-19, such as certain balanced system supply delays and schedule impacts related to labor availability, we have been working with relevant stakeholders to remediate any project schedule delays. The majority of these delays at this time have been mitigated. As it relates to project sales, these require input from and coordination with multiple government and private sector counterparties across a variety of development and financing areas, many of which have faced disruptions in business operations. Therefore, we expect to see delays in project sales in the United States, Japan and India. However, our strong net cash position provides us with financing flexibility and the option to balance sheet finance project construction as well as temporary hold operating assets through periods of market dislocation or disruption in order to create options to maximize value. Alex will discuss this later in greater detail. With regard to O&M, as one of the world's largest O&M providers, we continue to safely and effectively manage our utility-scale portfolio, so these power plants can continue to generate reliable clean electricity. Our O&M business is well positioned for the current environment as our strategy emphasizes remote monitoring, analytics and predictive maintenance to optimize power plant health and minimize on-site presence. In our operations center at our global headquarters in Arizona, we have implemented stringent health and safety measures in seating arrangements in line with recommended social distancing protocols. As a result of these measures, our O&M business continues to efficiently and safely meet the needs of our customers. Turning to Slide 6. I will next provide a market, technology and manufacturing outlook. While we are monitoring the near-term impacts of solar procurement, the catalysts for driving increased utility-scale solar penetration continue to grow. Firstly, in many markets, new-build utility-scale solar is economically competitive with fossil fuel generation on both a total and marginal cost basis. In fact, at the start of 2020, the U.S. Energy Information Administration estimated that the United States will see six gigawatts of uneconomical coal capacity decommissioned in 2020, while 13.5 gigawatts of new utility-scale solar would be installed. Secondly, our technology's performance and reliability are well understood. With over 600 gigawatts of cumulative capacity installed globally through the end of 2019, solar has transitioned from an alternative to a mainstream energy resource. Finally, while solar experienced a period of significant expansion over the past decade, we are still in the early innings of growth. Although United States has 80 times more solar installed today than it did a decade ago, the 77 gigawatts of installed solar capacity only accounts for 2% of the country's electricity generation. Against the backdrop of growth in demand for cleaner electricity and global commitments to achieve climate goals, we see significant runway for solar installation growth. Our Series six capacity plan is well positioned to capture a rapidly growing global PV market. In this context, I would like to note that our long-term capacity expansion road map is essentially unchanged. To date, the only shift in production strategy is delaying the plan 2020 optimization of our Vietnam factories. This elective decision reduces downtime in 2020, and we expect this will partially offset underutilization of our Ohio two factory. Shifting to our technology road map, our long-term technology road map remains unchanged to date. However, as operational limitations at our advanced research lab in Santa Clara, California, continue for an extended period, the timing of this road map may be delayed. As the only U.S.-based company among the 10 largest PV module manufacturers globally, we are committed to manufacturing and diversifying our supply chain in the United States and supporting U.S. manufacturing jobs within First Solar and externally. A good example of this commitment is a supply agreement with a glass provider that enable the construction of a new glass-float facility approximately 10 miles from our Perrysburg, Ohio manufacturing site. On a similar note, we are pleased with the decision in April of the office of the United States Trade Representative supporting the removal of the exclusion of bifaced solar panels from the Section 201 safeguard measures and are monitoring the resolution of the related litigation in the U.S. Court of International Trade. While we have been able to contract through the iterations of the bifacial exemption, we believe this decision of the U.S. Trade Representative is consistent with the underlying intent of Section 201 measures and helps promote a level playing field for U.S. solar manufacturing and innovation an environment of both free and fair trade. Turning to Slide 7. I would like to briefly highlight our bookings activity for the quarter. Despite the uncertain economic environment, demand for our Series six product remains strong as evidenced by the 1.1 gigawatts of net bookings since our prior earnings call. Included in this total are approximately 0.4 gigawatts of third-party module sales and 0.7 gigawatts of systems bookings. In addition, 0.7 gigawatts of the net bookings is for deliveries in 2022 and 2023. This demand for Series six and the strength of First Solar as a trusted partner have resulted in a year-to-date net bookings of 1.8 gigawatts. After accounting for shipments of 1.3 gigawatts in the first quarter, our future expected shipments are 12.3 gigawatts. Internationally, we are pretty pleased with approximately 60 megawatts we've booked in Japan since our prior earnings call. Although procurement volume has slowed in Europe, India and Latin America, we are cautiously optimistic that demand will recover after the COVID-19 pandemic. Turning to Slide 8. As mentioned previously, the catalyst for increased solar penetration continues to grow. As such, we expect our mid- to late-stage pipeline of opportunities to continue to support the growth of our contracted backlog. In terms of segment mix, the pipeline of 7.5 gigawatts includes 6.3 gigawatts of potential modules sales with the remaining 1.2 gigawatts representing potential systems business. In terms of geographic breakdown, North America remains a region with the largest number of opportunities at 5.2 gigawatts, Europe represents 1.6 gigawatts, with the remainder in other geographies. Finally, operationally, I am very pleased with our manufacturing execution, particularly given these extraordinary circumstances. During March and April, megawatts produced per day was 14.8 and 15.3, respectively. Capacity utilization was over 100% in both periods. Manufacturing yield was 94.5% and 95.4%. Average watts per module was 433 and 435 watts. The percentage of modules produced with antireflective coating was 97% and 98%. And the ARC bin distribution from 430 to 440 watt modules was 94% and 96%. From an entitlement perspective, we have demonstrated capacity utilization of 120% at each of our factories in Vietnam and Malaysia. Enabling and sustaining this incremental throughput, coupled with our module efficiency road map, gives us confidence we can continue reducing our module cost per watt. I'll now turn the call over to Alex, who will discuss our first quarter financial results and outlook for 2020. Alex?

Operator:

[Operator Instructions] And we have our first question from Mr. Philip Shen [Roth Capital Partners].

Mark Widmar:

Yes, Phil. I guess on the pricing side, again, one of the things, I think, we continue to emphasize and one of the points we want to continue to make is, again, how we manage our business and how we continue to try to differentiate ourselves and continue to position our technology to capture the optimal value in the marketplace. If you look at it on a year-to-date basis on the third-party module sales, everything that we booked year-to-date, call it, 1.1, 1.2, somewhere close to that number of the 1.8, the aggregate bookings are - have a 3-handle on it still. So if you look at the average that we've recognized so far against - on a year-to-date basis, it still has a 3-handle on it. Now as you go further out, there's two things that will show you a different complexion around the ASPs. One is how far out are we booking into in some of those module sales like, in particular, the one that you referenced is actually for shipments in 2022 and deliveries, I think, even starts to touch into 2023. So that's one thing. So the further out we go, as you would anticipate, the ASPs will have some amount of erosion as you move forward. The other is geographies of which we're recognizing the - where the models are going to be shipped. So the regions where we have the best value creation, hot humid climates, in particular, we're going to see higher ASPs. So if I had to give you a kind of - if you look at the average, you're going to see an advantage of probably to the average of $0.01 per $0.015 above the average when we're in kind of various core sweet markets for us like a Florida or even a Texas, okay, a Georgia. If you go north - the further north you go, you're going to see some downward pressure on the ASP. And so you may be $0.01 or $0.015 lower than the average if you're in Illinois, as an example. And so the order that we booked with Geronimo, which is, to your point, affiliated with our subsidiary of National Grid, some of that volume, a significant portion of that volume is going to be further up north in markets where we don't have as strong an energy advantage. So that - and it's further out in the horizon, so it sits out into '22 and even it touches '23. So where that volume is going to be north and then further out on the horizon, you're going to see a slightly lower ASP. And so across that average we've booked this year, does some of that volume have a 2, a very high and - a 2-handle on it, but a very high in the two range, it does. The average is still north of 3. And even when you go out into - further in the horizon, call it out into '22 and '23, if we're in a market or hot humid environment, we're still going to - we're still seeing three handles, okay? That's what we're seeing right now. Now again, we have plenty of time to be patient. I'm not holden - beholden to excess supply. Our book is full for the next 1.5 years. And so we can be very selective. We can engage with customers who value our technology, value our relationship with First Solar that we'll - they know we'll deliver, we'll honor against our contracts, and we'll provide a high-quality product. So as you get into that horizon, customers are looking for CuRe in that longer-dated horizon. I think we've got a unique value proposition, plus a lot of that volume that we did with Geronimo, I think almost all of it, is for our new copper replacement product that will create different advantages, better long-term degradation, even improved temperature coefficient. So we're happy with that booking. It's a great partnership relation we've had with them. And we're very happy with them being able to secure that volume. And I would say on balance that everything I've seen so far, I'm still happy with the ASP environment that we're in, given some of the numbers that you've quoted. And unfortunately, maybe some of our other competitors who have excess supply or an open book is maybe a better way to say, yes, they're going to see very challenging near-term ASPs.

Brian Lee:

I hope everyone is doing well. I guess first question I had was just on the gross margins in modules. They were up maybe 50 basis points versus Q4 like-for-like if we exclude some of the onetime items you highlighted, Alex. I guess I would have expected a bit more improvement with Series six volume growing here and Series four also lower in the mix and given the ongoing cost reduction. So the question would be just that the 10% decline in module production costs in 2020, is that still on track for the year? And then is there anything else in the quarter that might have limited the margin expansion versus where you ended 2019? And then second question, if I could just squeeze this in is on the systems business. Just wondering, that seems to be an area where you might have the most COVID-19 risk. So how much of your original revenue guidance for the systems segment this year was based on projects that had PPAs, but hadn't been sold versus projects that had already been sold and just need to recognize revenue ratably as they're complete this year. So just trying to see what that risk is if it's really about the project sales that you outlined or the projects that don't have sales status in the 10-K?

Mark Widmar:

Yes. And the only thing I'll add on the gross margin, Brian, when you look at it sequentially, a couple of things that are in the mix in there. One is that the - sequentially, the ASP is down for both four and 6, partly because the ASPs in the fourth quarter were benefited from the safe harbor pricing that was in the market at the time. Because, as you know, everybody was trying to capture their safe harbor and some of them took deliveries in - of that product in - by the end of the year. So you saw a little bit better ASPs associated with that, so you see a little bit of that. And the other is that there's still a reasonable amount - volume is down pretty significantly. So you see a pretty big drop in volume sold. And then there's still a reasonable amount of Series four that sits in the first quarter. Now as we move forward, the margin profile will continue to improve. There's about close to five percentage point difference between Series four and Series six when you look at it on a normalized adjusted basis. And as we move forward, you're going to see volume shipments move towards 100% from 36% as we get into second half, for sure, a little bit of Series four in the second quarter. But after that, it's all Series 6. And then as Alex indicated, you've got the benefit of the cost reduction road map as we progress through the balance of the year. And the fleet, yes, as Alex said, I think we're pretty happy with where we are with the fleet. There is some headwind that we're dealing with a little bit on - in Ohio and in Malaysia. Vietnam is performing extremely well. It's really the only factory that has really not been impacted in any way. Both Malaysia and Ohio have seen some impact. So what we'll probably most likely see is Vietnam will overperform for the year, and then they'll make up for some of the challenges that we've experienced here in Ohio as well as Malaysia.

Q –Unidentified Analyst:

This is Maheep on behalf of Michael. Alex, you spoke about the timing issue for the systems that comes from the previous question. But could you talk about any timing issues on the module side, where you might be delaying shipments on the customers' request? And then how should we think about that in relation to any underabsorption on production versus shipments and that impact on the cost later this year?

Operator:

And our next question comes from Mr. Ben Kallo [Baird].

Mark Widmar:

Yes. So Ben, on those large projects, I'm assuming maybe you're referencing some of the projects in the Middle East, which they've been big elephant hunting type of opportunities for module producers for a number of years. We were in early in some of those opportunities. And we did the very first demo project. And we provided the modules for the second one. And then what's happened ever since then on some of those large opportunities is people are just going extremely aggressive and very low pricing that is uneconomical. I guarantee that whoever is providing those modules, unless they're getting even incremental incentives to what they already have and being provided to them that there's - the module prices that they're trying to bid into those projects is that they're probably barely covering variable cost of the project. And so we've chosen not to participate in that. That's one reason why we have the strength of the contracted backlog that we have. We can be selective, and we're not looking to entertain and willing to participate in those types of opportunities. We have many other places that we can go to and capture better value for our technology. As it relates to visibility in - the biggest impact that we're having around guidance is the uncertainty of capital markets. And there's three large projects from revenue and margin penetration standpoint. There's American Kings and Sun Streams two here in the U.S., and then there's the Chicago project in Japan. There's a couple of other projects as well, but those really are the three largest revenue and margin contributors. And right now, we don't have great clarity around what's going to happen in the capital markets. And also the - we have expectations on what we think the value that is embedded in those assets, and I don't want to just go out and sell just to be beholden to an earnings or revenue commitment to the year if it means I'm going to get diminished value. We want to be able to optimize that value, and we've been very selective with doing that in the past. And we may end - in this case, end up holding some of those assets longer than we would have otherwise because we can capture better value when markets normalize back. And I think there's a lot of uncertainty right now. As Alex indicated, there are some positive indicators in the capital markets and there's potentially issues in the capital markets. Until everyone can kind of see what happens and sort of evaluate from their own perspective, we won't know till we know. And so we have to get out into the market and really get an update. We've got indication of value of assets pre-COVID. And unfortunately, what we need to do now is better - get a better indication of what the valuation of those assets would be post-COVID. So the systems business is a piece of it. But the other thing that Alex mentioned is not - we do have - we have firm committed contracted backlog and sold out for the year. So we have that. But - and a high percentage of our module - third-party module sales, customers have already gone out and they've closed on financing. There's a difference between us. I mean, we, obviously, have balance sheet financing. Most of our customers would go out and they get construction financing, tax equity bridge loans and everything else. So they've already got committed capital. So a good percentage of our backlog has committed capital. But there's other portion of our module shipments that our customers have not closed on their financing yet. So they need to do that. Though some of that's delayed, some of that pushed their schedule, and - we don't know yet. And so we have to get that insight to get - have a higher level of conviction around the module business and the contribution from revenue and earnings for the year. We've been in close contact with a number of them, but they are still highly confident in their ability to close. They're getting signals from the banks. And whether it's a debt side or the tax equity side, and they feel comfortable, but they're still uncertain. And so we felt that given where we are right now with all the uncertainty that we have, the right thing to do is to pull guidance. Now I can, and I think Alex said in his comments, we are very happy with how the year has started. We're very happy with everything that we've seen and as we move forward. If things return to what we had initially - what the world of the capital market was like in February, then we feel very confident we can still deliver against commitments that were made in February. But I don't know yet. I mean there's so much uncertainty that we feel right now, let's pull the guidance, make sure people understand kind of where we are, and we'll continue to provide the best information when we learn more, especially around the sell-down of our projects or if there's any customers that have, for whatever reasons, difficulty in closing financing for their projects. And then our project module shipment schedule gets pushed it off.

Operator:

And our next question comes from Mr. Colin Rusch.

Mark Widmar:

Yes. So I mean, Colin, as you could expect, there's a portion of that order module backlog at utility-owned generation. So something's going into rate base that's already been approved through commission and all that. I mean, that's not a risk item, right? If anything, we're being hit directly and aggressively continue to produce and to make sure we deliver against commitments and schedules and everything else, right? So there's a portion of that. It's really the - it's more the PPA for segment and for - primarily for independent power producers or developers. And that's where the risk runs. And I would say the stuff that we're anticipating to deliver through to Q2 and Q3, largely financing is in place. Where you start seeing a little bit more of a gray area is projects that would be delivered in Q4 that released support CODs that start out in - there would be projects that would hit COD into 2021, call it, the second half of 2021. So we're about a year or so out from where those CODs are, and construction hasn't actually started in those places. So - and you've got to remember, this disruption has been with us now almost two months. And so people were going to go out, sort of hit the capital markets in kind of the end of Q1, beginning of Q2 that largely would have put their construction financing, tax equity bridge financing in place that then would have funded their construction and deliver against CODs in the second half, middle of 2021. So it's really the volume that sits in our fourth quarter that is our most exposure to the stuff. In Q2, Q3, it's not as much. And again, if anything, it's more directly tied to the utility-owned generation, which a portion is - of that volume is less risk at this point in time. I don't have the exact percentages that I can put you in each bucket, but I can just give you some color around where the exposure sits.

Operator:

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.+

Operator:

Good afternoon, everyone, and welcome to First Solar's Fourth Quarter and Full Year 2019 Earnings and 2020 Guidance Call. This call is being webcast live on the Investors section of 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. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Mark Widmar:

Thank you, Mitch. Good afternoon. And thank you for joining us today. I would like to start by addressing our loss per share results for 2019, which was a $1.09 on a GAAP basis, with earnings per share of a $1.48 on a non-GAAP basis adjusted for litigation losses. We are disappointed with the outcome, which came in below our EPS guidance range. While Alex will provide a more comprehensive overview, I want to highlight several items that had material impact on this result. Firstly, as initially disclosed on January 6, we entered into a Memorandum of Understanding to settle the previously disclosed action litigation, which was originally filed in 2012. Earlier this week, we disclosed that we entered into a settlement agreement that is consistent with the MOU. As part of this agreement, which is subject to court approval, we agreed to pay a total of $350 million to resolve the claims asserted by the class action. The settlement agreement does not contain any admission of liability, wrongdoing or responsibility by First Solar. While we are confident in facts and merits of our position, we believe it was prudent to end this protracted and uncertain class action litigation process and focus on driving the business forward. As a reminder, the settlement agreement does not resolve any of the claims asserted in the opt-out action against us or the derivative action. Secondly, challenges related to our systems business over the last few months have had significant impact with respect to revenue and gross margin. These challenges relate to both project sale and completion timing, as well as higher expected cost due to adverse weather impact. Alex will provide more detail on the impact of these challenges to 2019 results. Despite the EPS result and in the year continued intense competitive pressure across PV industry, I would like to highlight some of our notable achievements in 2019. Please turn to Slide 4. Firstly, the Company celebrated its 20th anniversary and reached a significant milestone of 25 gigawatts of module shipped. We are the world's largest thin film PV module manufacturer and the largest PV module manufacturer in the western hemisphere. Secondly, we saw strong net bookings of 6.1 gigawatts as well as record shipments of 5.4 gigawatts. Thirdly, in 2019, we produced 3.7 gigawatts of Series 6 product, a 3 gigawatt increase over 2018. Our Series 6 nameplate manufacturing capacity increased to 5.5 gigawatts. Our top production bin reached 435 watts and our commercial production line, which we manufactured a new record, 447 watt cad tel module as validated by Fraunhofer. These remarkable accomplishments, which demonstrate the strength of the First Solar team and culture give us confidence in our ability to continue to realize the full potential of our competitively advantaged Series 6 platform. Turning to Slide 6. I'll provide an update on our Series 6 capacity ramps and manufacturing metrics. Over the course of 2019, we realized significant operational improvements comparing December of 2019 metrics against those of December of 2018 megawatts produced per day was up a 152%. Capacity utilization adjusted for plant downtime increased 26 percentage points to 100%, production yield was up 32 percentage points to 94%, average watts per module increased 20 watts, and our highest volume bin increased to 435 watts. Finally, the percentage of modules produced with antireflective coating increased by 24 percentage points to 96%. This momentum has continued into 2020. Comparing February 2020 month-to-date against October 2019 metrics, megawatts produced per day is up 25%, capacity utilization adjusted for downtime remained over 100% at 105%, production yield is up 2 percentage points, average module per watt led by our highest bin of 440 watts has increased 7 watts and the percentage of modules produced with anti-reflective coating has increased by 2 percentage points. This combination of our efficiency improvement program and increased ARC utilization led to a significant improvement in the module bin distribution. The ARC bin distribution from 430 watts to 440 watts during this period was up significantly to 93% of production. Turning to Slide 7, I'll next discuss our most recent bookings in the - in greater detail. Our fourth quarter net bookings of 1.4 gigawatts bring total 2019 net bookings to 6.1 gigawatts. We are off to a strong start in 2020 with 0.7 gigawatts of net bookings since the beginning of the year. Included in our new bookings since the previous earnings call are approximate 0.8 gigawatts of aggregate orders for deliveries in 2022 and 2023. Our future expected shipments of 12.4 gigawatts remained strong even after a record fourth quarter shipment, which accounted for 31% of the full year total. Our net bookings for the year included 1.7 gigawatts of debookings, including 1.2 gigawatts of the debookings in the fourth quarter. Approximately, 0.9 of the fourth quarter debookings related to a customer in financial distress. To improve our counterparty risk we have relieved this customer of their obligation and re-contracted majority of this volume. Note, demand for our Series 6 module remained strong, as reflected in our gross bookings since our last earnings call of 2.6 gigawatts. We're very pleased with our bookings performance in 2019, which exceeded our one to one target book-to-ship ratio. We believe our record of meeting pricing and delivery commitments for long-dated agreements enables us to contract significant module volume, not only in the near term, but also in 2021 and beyond. I’ll now turn the call over to Alex, who will discuss our fourth quarter and full year 2019 results.

Mark Widmar:

Thank you, Alex. Thank you, Alex. Turning to Slide 12, I want to start by highlighting the strong market opportunity in front of us. In the next five years alone as reflected in the graph to the left, the amount of PV capacity installed globally is expected to double. As shown on the graph on the right, PV in many markets is competitive with all major forms of fossil fuel generation. Market momentum for PV continues to build. Our Series 6 technology, product road map and market-leading research and development are all key differentiators, which we believe will enable us to meaningfully participate in this wave of demand for clean and affordable energy. Within this context of the overall market, Slide 13 provides an updated view of our global potential bookings opportunity, which now totaled 18.1 gigawatts of opportunities. This includes 9.8 gigawatts in 2020 and 2021, with the remainder 8.3 gigawatts for deliveries in 2022 and beyond. In terms of segment mix, the pipeline of opportunities includes approximately 15.4 gigawatts of module sales, with the remaining 2.7 gigawatts representing potential systems business. In terms of geographical breakdown, North America remains the region with the largest number of opportunities at 14.8 gigawatts. Europe represents 2.4 gigawatts, with the remainder in other geographies. A subset of this opportunity set is our mid to late stage bookings opportunities of 8.2 gigawatts, which reflect those opportunities we feel could book within the next 12 months. This subset is approximately 72% module only, 70% North America base, with 43% of the deliveries anticipated in 2022 and beyond. This opportunity set combined with our contracted backlog gives us confidence as we scale our manufacturing capacity. Turning to Slide 14. With the addition of our second Perrysburg factory during the fourth quarter of 2019, we exited the year with a nameplate Series 6 manufacturing capacity of approximately 5.5 gigawatts. This includes increase in the nameplate capacity of our second factory in Perrysburg from 1.2 to 1.3 gigawatts, enabled by optimizing tool performance, identification and alleviation of bottlenecks and optimizing work-in-process across the broader Perrysburg complex. Through 2020, we will roll out similar throughput improvements across the three operating facilities in Vietnam and Malaysia, which will - with limited capital expenditures will enable these factories to end the year at higher than 1.3 gigawatt nameplate capacity, an increase of 0.3 gigawatts of aggregate capacity. In addition, we will continue factory optimization in Ohio and expect to increase nameplate capacity there by an additional 0.2 gigawatts, resulting in a fleetwide year-end 2020 nameplate capacity of 6 gigawatts. Continuing into 2021, we expect the combination of improved throughput, yield and efficiency to increase nameplate capacity at our international factories to 1.4 gigawatts. With the addition of the second Series 6 factory in Malaysia, this implies total international manufacturing capacity of 5.6 gigawatts. In Ohio, through the installation of additional tools and optimizing the two Perrysburg factories into one consolidated platform, we expect to increase nameplate capacity to 2.4 gigawatts by the end of 2021, resulted in anticipated fleetwide nameplate capacity of 8 gigawatts by the end of 2021. Turning to Slide 15. This capacity expansion will have a meaningful impact on our production capability. In 2019, we produced approximately 3.7 gigawatts of Series 6 and 2 gigawatts of Series 4. As previously discussed, we expect our remaining Series 4 capacity to be wound down in the second quarter of 2020, with total production in the year to be approximately 300 megawatts. Series 6 production is expected to increase significantly due to the start of production at Perrysburg 2 and the implementation of the aforementioned manufacturing and module efficiency improvements. In 2020, we expect approximately 5.7 gigawatts of Series 6 production. With the second Series 6 factory in Malaysia expected to start in the first quarter of 2021, and with anticipated increased nameplate capacity in Perrysburg, we expect 2021 production of 7.3 to 7.7 gigawatts. With regards to bookings, we are effectively sold out through 2020, and are approximately two-thirds sold out to the midpoint of expected supply in 2021. In addition, we have approximately 2 gigawatts sold into 2022 and beyond. Turning to Slide 16, I will now discuss our module efficiency improvement road map. On our 2017 guidance call in November of '16 and updated at Analyst Day in December of '17, we provided an expectation of near and mid-term efficiency goals. As shown by the purple dot and the yellow line on the graph, we expected to launch in 2018, a 420 to 430 watts per module and we set out a mid-term target of 460 watts per module. At the end of 2018, despite a high band of 425 watts, our average watts per module was only 411 as we faced challenges in the initial ramp of our Series 6 product. We’ve continued operational improvements, increased ARC penetration and the execution of our efficiency improvement road map. By year-end 2019, our average watts per module has increased to 430 watts on a fleetwide basis, with a high den of 435 Watts. Today, our highest volume bin is 435 watts, which are consistently - and we are consistently producing 440 watt modules as mentioned previously. And we have certified a record production module of 447 watts, which requires no significant technology changes and thus represents a near-term production target. As we look forward, we see a clear line of sight to achieving the target stated at December '17 Analyst Day of 460 watts per module, as well as significant opportunity to go beyond that with a new mid term goal of 500 watts per module. Note, unlike recent increases in crystalline silicon module sizes, the watt increase will be achieved using our current module form factor. As previously discussed on the prior earnings call, the key driver to achieving this efficiency increase is our copper replacement or CuRe program. Structured in three phases, the initial Phase 1 work, combined with other ongoing R&D programs, is expected to lead to an approximately 20 watt improvement, bringing to us a 400 watt per module goal, which we expect to achieve by our -- on our lead line in the second half of 2021. After the launch of CuRe, there'll be further optimization in two additional phases that will be the main drivers behind our new 500 watt mid term target. As shown recently through our R&D efforts, replacing copper in the thin film device not only serves to increased module wattage, but also dramatically improves energy delivery. This program is expected to increase the Series 6 energy advantage by improving our temperature coefficient advantage relative to crystalline silicon modules as well as significantly reduce long term degradation in a predictable in quantifiable manner, and thereby, increase life cycle energy. Turning to Slide 17. I'd like to compare the value proposition of our new CuRe Series 6 module relative to a crystalline silicon mono PERC bifacial module. While the potential energy advantages of bifacial modules are often touted, the increased costs are often overlooked. As PPA and merchant energy prices continue to decline, the ability to increase energy output with little to no increase cost is critically important. Designing the solar power plant with bifacial modules is a trade-off of cost for energy, as it typically adds incremental capital and operating cost compared to a monofacial plant. Among others, these costs include the requirement for additional steel to enable elevated structures, additional land and development cost to accommodate increased row spacing, and increased O&M and vegetation management cost to allow for diffuse light reflection. Turning to Slide 18. I'll provide some context around our module cost per watt. As presented on our 2017 guidance call in November of 2016, over a year prior to the production of our first module Series 6 module, we forecasted a Series 6 cost per watt of approximately 40% lower than that of Series 4, while at the same time eliminating any significant form factor difference and associated cost penalty. With the start to Series 6 commercial manufacturing, we have faced challenges with regard to certain aspects of the overall cost per watt and particularly related to glass and frame cost compounded by tariff gyrations and uncertainty. Offsetting these, we have seen significant improvements in throughput and efficiency, especially in our high volume international manufacturing locations. As mentioned in our third quarter 2019 earnings call, these international facilities have consistently been producing above a 100% of nameplate, reaching a recent high of approximately 120% of original nameplate. We are on a plan to achieve our year-end cost goals for these international facilities. However, in Perrysburg, the earlier production ramp of our second factory together with the challenges related to the build materials, labor and sales freight costs created significant headwinds. With this backdrop, at Q3, we forecasted our fleetwide cost per watt to end the year approximately $0.005 higher than the internal target we set at beginning of the year, which is where our fleet cost actually ended the year. Based on our 2019 exit point and forecasted throughput yield and efficiency improvements in 2020, we are expecting to exit 2020 at our low cost, high volume manufacturing sites, having achieved the original cost per watt target that we set out in November of 2016. Throughout 2020, the module cost per watt at Perrysburg is expected to improve, as we ramp our significantly larger second facility and we drive throughput improvement across the two factories. However, we do not anticipate to fully overcome the cost challenges experienced in 2019. Across the fleet in 2020, Perrysburg representing one-third of the production will create a headwind of approximately $0.01 per watt. Looking beyond 2020, I would like to discuss five key levers that we believe will enable us to reduce cost per watt in the mid term. Relative to these levers, it is important to note the significant impact, improved efficiency and throughput have on cost per watt. Firstly, efficiency improvements generally have little, if any impact on the cost of producing a module. Therefore, in general, the percentage improvement in watt per module can be directly translated into a reduction in cost per watt. Secondly, throughput improvement, essentially by definition, are leveraged against fixed cost, which results in the incremental volume above nameplate capacity being the variable cost of production or typically the module build materials. Now looking at the slide and starting on the left, the blue bar represents the original cost per watt target communicated in November of 2016, which we anticipate achieving at our high volume international manufacturing site by the end of 2020. Beginning with watts per module, increased module wattage through our previously discussed R&D efforts and the CuRe program leads to a significant cost per watt reduction. Secondly, over the mid term, we see the potential to increase throughput by approximately 30% to 35%, which provides a fixed cost dilution benefit. Thirdly, we are targeting an increase in manufacturing yield from approximately 95% today to a mid-term run rate of approximately 98%, which provides a direct benefit to fixed and variable cost. Fourthly, we see mid-term opportunities to reduce variable build material cost of between 20% and 30%, primarily across glass and aluminum. And finally, we believe the combination of increased watts per module and transport optimization can lead to a 10% to 20% reduction in sales freight cost. Note, for comparison purposes please remember, unlike our competitors we include sales freight and warranty in our cost per watt. Combined with the benefits of our CuRe and other R&D work with the aforementioned cost levers, we believe we are strongly positioned to continue to drive Series 6 cost per watt efficiency and energy improvements over the mid -- the near and mid-term. Relative to our commitment to technology leadership, as I mentioned previously, we have recently re-energized our advanced research team. While there is still tremendous headroom in our Series 6 platform, we continue to challenge ourselves on commercializing the next generation disruptive thin-film technology. It is exciting to see what the team has accomplished so far and the extraordinary potential there is for thin-film, cad-tel, PV beyond Series 6. Finally, before turning the call over to Alex, I would like to provide an update on the internal review discussed on the third quarter earnings call. As a reflect over to less than two years since our first Series 6 production module came off our initial line of Perrysburg we are extremely pleased with the progress we've made. We've created a position of strength with our multi-year backlog and our module wattage energy in cost per Watt roadmaps. However, as we look across the next decade, we need to challenge our business vertical strategy to assess if product offerings - if our product offerings are at a position of strength that can leverage point of differentiation to create value for our customers and an attractive profit pool. We have been conducting an evaluation of the long term sustainable cost structure, competitiveness and risk adjusted returns of the each of our product offerings including the module, development and O&M business. At our core, we are a technology and manufacturing company. Over time, we have added to this core competency in order to address unmet needs within the market, optimizing around and enabling a delivery of our products and capturing an incremental profit pool. These capabilities have included, among others, project development, EPC and O&M. As discussed in our previous earnings call, we have made a decision to transition to a third-party EPC execution model. We originally entered into the EPC business to enable cost effective installation of our smaller form factor modules and to fill a credit - the capability gap in the PV market. Over time, market participants increased with many having economies of scale, leveraged across multiple market segments, the external ecosystem of the EPC capabilities improved and risk-adjusted returns diminished at the same time as our product evolved to be more compatible with market balance of system offerings. Consequently, the premise for us maintaining an internal EPC competency was no longer justified and hence, we made the decision to transition to a third-party EPC execution model. The U.S. development business was likewise experience of significant evolution and the business that we entered into in 2008 is dramatically different today. Originally viewed as a channel to market for our smaller form factor modules, the development business initially saw PPA size in the hundreds of megawatts in a handful of markets providing certainty of offtake for a significant portion of our manufacturing capacity. We also benefited from our first-mover advantage, enabling us to capture a profit pool incremental to our module sales. Today, we are significantly expanding our manufacturing capacity with a more advantaged Series 6 product, competition within the development market has increased, project sizes have decreased and the risk-adjusted returns have reduced, as aggressive pricing has resulted in benefits to -- of the projects flowing to declining LCOEs rather than to increase development margins. At the same time the capabilities required to be successful and then development have changed. The historic pillars of solar project development include siting, permitting, interconnection and securing a creditworthy PPA. These skills remain fundamental, however, successful project development at a meaningful scale today requires a broader geographical market presence, as well as additional competencies such as battery storage, power trading, the ability to manage increased offtake complexity and financial structure and complexity, as well as asset ownership. In this more competitive environment, there remain opportunities for project developers to make sensible margins. However, for us to remain competitive in the long term we would need to invest in enhancing our capabilities and offerings to the market to reflect this new development paradigm, while maintaining a competitive cost structure. Any such investment needs to be compared with our primary investment thesis to increased module R&D and add manufacturing capacity and improvements. Accordingly, our focus is not to create internal capabilities that already exist externally. As a result, we are working with an advisor to evaluate strategic options to best position our U.S. development business with the mandate to position the business to succeed and the continuing evolving market for solar generation assets, while maximizing value for First Solar shareholders. While we're are open to partnering with a third-party who possesses complementary competencies and capital to further scale the business, the pursuit of a partnership could potentially result in a complete sale of the U.S. development business. Turning to O&M. We entered the business at the same time as we entered into utility scale development and EPC in order to satisfy another unmet need in the PV market and take advantage of another profit pool within the utility-scale space. Our O&M business on the natural extension of our position, as one of the largest developers and EPC contractors in the PV industry allowing us to maintain a long term relationship with the counterparty and the project after was developed, sold and constructed by us. Over the last several years, we have expanded our O&M business beyond our captive development pipeline to third-party developed projects with and without our modules. We have created a formidable [ph] position, as the largest O&M provider in the U.S. Our economies of scale, largely have traded a competitive advantage and allowed us to maintain a profit pool in an aggressive pricing environment. However, beyond scale additional value-added services and cycles of innovation are needed to enhance our O&M value proposition and deliver services in a more cost-effective manner. We continue to evaluate our O&M strategy in light of these requirements. For clarity through our ongoing evaluation the objective is to ensure our O&M business able without constraints to achieve its full enterprise value potential and continued market leadership. The consideration of strategic options for our U.S. development business is at preliminary stage and may not result in any transaction being consummated. We do not intend to disclose further developments with respect to this evaluation process, except to the extent, the process is concluded or is otherwise deemed appropriate. I’ll now turn the call back over to Alex, who'll provide 2020 guidance.

Operator:

[Operator Instructions] Your first question comes from Philip Shen with Roth Capital Partners. Your line is open.

Mark Widmar:

Yes. So on the mid term. So if you think about the CuRe program, we'll start the initial production, our lead line in the second half of 2021 and then start to see it really realized across the entire fleet in 2022. So if you think about even that, let's say the 2022, we originally have sort of set the mid term goal in '17 or so. So it also gives you some indication of a horizon, which we may be looking towards for the 500 watt module that we dedicated as well. But we're very obviously pleased with the launch of our copper replacement program and we're also - to couple that with where our backlog position is right now, it really hits the window where we wanted to hit, is the window we need to sell through into in '22 and '23. You should look to the majority of that volume in that window. We'll be able to have our copper replacement program out there and competitively pricing into the marketplace and capturing the full value of the energy yield that we would realize from that. The systems business, Alex can give you some insight around modules, but what I want to make sure is clear as well is we have committed to a safe harbor investment and we've talked about that. We've got the capability of safe jarboring couple of gigawatts. We have a mid to late stage pipeline of close to 2 gigawatts here in the U.S. of opportunities that we're actively engaging in. We have purposely looked to try to monetize those projects into a 2022, 2023 window. It also somewhat ties in nicely to where the 201 tariffs start to wind down plus your value of your safe harbor investment is most accretive in '22 and '23. So you'll see as we continue to build up that pipeline and monetizing contract, most of the volumes are going to be out in '22 and '23. I think, the best way to think about it right now, Phil, is not to assume any changes, because we're going down too fast. One is, look, I think, when you position us into utility-owned generation space, which we're seeing a lot of that happening in the market right now and a pretty significant inflection point of that happening and a big portion of our 2 gigawatt, that's a sweet spot for us and we'll hit home runs there all day long is exactly where we want to be, because we don't want to generating assets, when we work with great counterparty. The problem we have a little bit of where I want to see how we can further enhance our capabilities is more complex transactions, merchant risk exposure, hedge contracts, basis risk basically block power shared storage, that's a space that we I don't think yet are where we need to be relative to the capabilities of the marketplace. And so we need to challenge ourself in how do we best accomplish that and one of the path to do is that is can we find a partner or somebody else we can work with that has those types of capabilities that are complementary to where we are. But we also highlighted to the extent we go down that path, it could result in a sale of the business through a partnership structure that someone may obviously we'll look to deal within the best interest of our shareholders. But if it resulted in someone paying maximum value for the platform that we have, we may look to that as the best possible outcome if we feel we're uncomfortable with getting kind of the partnership capabilities that we think we would need to best compete over the next decade. And as you may remember, this is the objective we set out for is how do we position, not only our module business, but our energy services business and our development business to be able to thrive in the upcoming decade. And we need to make sure there is a path to do that and that's what we're exploring right now.

Operator:

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

Alex Bradley:

Yeah, Brian. I'll give you a little bit of color on the gross margin. So we haven't broken out by module and system, but you can see in the guidance, we are guiding to a 26% to 27% on a consolidated basis. You're right that there is limited reduction on the ASP side as we go from '19 into '20, although we are seeing some - we are seeing a cost per watt drag largely associated with Perrysburg. So we talked about ending the year about $0.005 [ph] higher than our expectations on a fleetwide basis, largely driven by cost per watt at Perrysburg. If you think about the mix shift, although we get some benefit from moving Series 4 to Series 6, as we ramp Perrysburg 2 this year on a mix basis, we're going to have more relative volume coming from our higher cost factories than we did last year. So that drag now across the fleet is going to be around $0.01 cost per watt in 2020. On the system side, we've got lower volume, hence you're seeing lower revenue on the - in revenue line, but on the margin side, there is three other things I'd point to that are dragging down consolidated gross margin through the year. You've got start-up and ramp costs, which is coming in and about $60 million to $79 million coming through, and that's associated with bringing Perrysburg 2 up and Malaysia 2. So you've got a pretty significant track there. We've also got about $20 million of shutdown cost associated with closing the Series 4 factory in Malaysia and you're going to see that coming through the gross margin line as well. And then, finally, about $10 million of severance cost. So as you look through the gross margin line this year, just bear in mind, you've got somewhere close to $100 million relative to that 2.8-ish [ph] point of revenue line that's impacting gross margin on a negative basis.

Operator:

Your next question comes from Paul Coster with JPMorgan. Your line is open.

Alex Bradley:

Yeah, Paul. So if I look at...

Alex Bradley:

Yeah. So if I look at it, you've got about $1 shortfall, about $0.70 of that is related to timing. So you've got Japan, India, U.S. projects and U.S. module. But there's also another, call it, roughly $30 million of true cost increases. So impacts from U.S. project, weather issues. We had an accrual change relating to this deal with a customer. We have some severance and other miscellaneous costs. So if I look at those, you've got, call it, $0.70 of the roughly $1 is associated with timing versus true cost impact. When I roll that forward into 2020, about $0.50 of that is going to roll into 2020. So the breakdown there is, in Japan, two of the three assets are being pushed into 2020. Our Miyagi asset, however, is not just based on where we see the timing of construction and the Gen 5 today. Now, if that changes that could get pulled in later, but as of now, that's not in the guidance for 2020. The other pieces that previously we'd assumed the structuring of our Japan assets will go through this private fund that I mentioned in the prepared remarks, based on pulling the Miyagi asset out and the complexity we've have seen, I think we're targeting now selling those assets on a bilateral basis versus in a fund with a small impact to that. So that $0.50 to Japan, you are going to pull about $0.35 through. The other timing piece, you're going to pull about $0.15 of the $0.20, that's a function of - in the U.S., although we hit substantial completion on the projects that we were targeting by year-end, we had some small cost increases to do so, as well as the fact that on the India assets, we just had some diminishing value, as we've been negotiating those sale contracts. So if you look at it, you can assume about $0.50 gets rolled 2019 to 2020.

Ben Kallo:

Hi, guys. So I guess, could you talk about like your low cash balance point, what do you think it is with all your CapEx? And then my second question is just on, I guess, we're all trying to figure out like cost per watt, we're using $0.21 or something like that and how off are we on the mark there going forward? Thanks.

Mark Widmar:

Yeah, I think, the thing about this, Ben, when you go into, especially in 2021 CapEx, burn rate is down significantly and then you've got, as we show in the production plan, supply plan that we anticipated to have about 2 gigawatts of incremental shipment in 2021, so you've got 5, 7 relative to a high end of 7, 7 in 2021. So that is going to drive incremental - significant incremental cash flows because that contribution margin largely is going to flow through to cash. As it relates to cost per watt, Ben, look I think the - we haven't given a discrete number, but there is many numbers that are right around that range and those are numbers that we, as said before that we're comfortable with and we've got a near-term issue, we're still working through with Perrysburg and got headwind against the fleet, which I highlighted in our remarks of about $0.01 and we expect it to work that out over time, but not in 2021 and we've got actually into 2020, but we've got ramp-related costs and other things that are flowing through and severance as we make the commissioning costs and other things like that are starting to flow through the results for 2020. But the other thing I want to make sure, that we don't miss is that we have many levers to go, let's use your leaping off point just as an example. The levers on which we can continue to drive cost down are significant and highlighted in the slide that we showed in the - during the call. Just the increase, today we're at an average of 435 type number, slightly lower than 435 and if we take that up to 500 that's tremendous increase in watts, which largely is scale correlates specifically to a reduction in cost per watt throughput that we have, the team has done a tremendous job of putting forth a road map that can take our original nameplate capacity of a factory and increase it by a third, that's another significant lever. So I think, there is a near-term issue that we're dealing with, but when we look across the horizon and where we can ultimately go from a cost and performance standpoint of our product, we're extremely happy with where we are and what the potential is in front us.

Michael Weinstein:

Hi, guys. Hey, on Slide 18, is it your intention to show that costs are coming down about half of where they - half of the starting point? Is that diagram for scale or is that non-intentional?

Michael Weinstein:

Okay. I mean is there any particular reason why you don't give an exact number? Is it competitive reason for something or is there some other reason?

Operator:

Your next question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Your line is open.

Mark Widmar:

Yeah.

Mark Widmar:

Yeah. Julien, so we previously guided to 1 gig and sometimes up to 1.5 gig and that 1.5 gig a year was also partly EPC project. So as we've now moved away from internal EPC to a third-party execution model, the best we can give you is to anchor around that gigawatt a year of volume. As I mentioned in 2020, you are not going to see that relatively flow through the Systems segment, just given how we structured some of these deals. So the same volume as that was approximately originated through the Systems segment through that channel, but on the accounting side, by virtue of how we structure those deals, you're going to see that mostly flow through the Module segment in 2020. But absent any change to -- any strategic change here that we've been discussing, continue to model around that gigawatt a year. The other thing I'd say is, as you go further out, we have safe harbor 2 gigawatts of capacity, we would like to try and use that out in more in '22 and 2023. That was largely sold through a lot of our capacity in the near term and we've done so capturing full value entitlement for the module. So we've been able to do that without losing much money relative to a system sale, but without taking the risk of those systems deal. So I think from a relative risk perspective, we've captured full value in the next couple of years. We think if you look through into 2022 and 2023, when the relative delta between a safe harbor 30% ITC project relative to going down than towards China is great. So that's when we're looking to deploy that product. And so in terms of value, the significant value creation now in '22 and '23.

Moses Sutton:

Thanks for taking my question. For the systems business, assuming you find a partner that, let's say, solves the basis and related risks, how might cost need to come down, the core cost itself, given you're moving to third-party EPC to let's say allow you to bid at PPA prices of $30 a megawatt hour, while still maintaining say around the 20% margin as a developer?

Operator:

That is all the time we have for questions. This concludes this conference call. You may now disconnect.

Operator:

Good afternoon, everyone, and welcome to First Solar's Third Quarter 2019 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. (Operator Instructions) As a reminder, today's call is being recorded. I would now like to turn the call over to Adrianna Defranco from First Solar Investor Relations. Ms. Defranco, you may begin.

Mark Widmar:

Thanks, Adrianna. Good afternoon, and thank you for joining us today. I'll begin by noting our third quarter earnings of $0.29 per share. We had a variety of sources contributing to our Q3 EPS result. Firstly, the third quarter reflected our strongest quarter of the year with respect to third-party module sales driven primarily by a significant increase in the volume of watts sold compared to previous quarters. Secondly, on the system segment side, we successfully closed the sale of our 72-megawatt Seabrook project and are continuing the momentum with the recently signed transactions for the sale of our 150-megawatt Sun Stream, 100-megawatt Sunshine Valley and 20-megawatt Windhub projects. These deals remain subject to certain conditions precedent for closing, which we expect to be satisfied during the fourth quarter, resulting in a meaningful contribution to our full year revenue and earnings. Finally, reflective of our module's outstanding sales performance, lower-than-expected warranty return rates and other factors, the third quarter EPS result benefited from a reduction to our product warranty liability reserve. Alex will provide further detail on this later on the call. From a module production standpoint, we continue to make significant strides in the ramping of our Series 6 module capacity. As of the beginning of this week, we started the ramp of our second Perrysburg factory approximately three months ahead of schedule. This marks the fifth Series 6 factory, where we have commenced operation within a period of only 18 months. Across our manufacturing fleet, we had 4.2 gigawatts of Series 6 nameplate capacity at the end of the third quarter, increasing to 5.5 gigawatts this week with the addition of Perrysburg 2. From a booking perspective, we added an additional 1.1 gigawatts of net bookings since the last earnings call, bringing total revenue expected shipments to 12.4 gigawatts. Accordingly, we have significant visibility regarding the module business into 2021. During the quarter, we announced an evolution in our EPC delivery approach, transitioning away from an entirely EPC execution model and moving towards leveraging the engineering, procurement and construction capabilities of innovative partners in The United States. While we are proud of our history as a leader and pioneer in the global PV EPC industry, there were several drivers to this decision. Among these is leveraging the advanced capabilities of our partners whose primary or sole business focus is EPC execution, which enhances product's cost competitiveness and derisk project execution for First Solar. Moreover, our ability to execute this transition reflects an improved balance and system compatibility of our Series 6 module. In the past, one of the drivers of our EPC business was to enable the cost-effective installation of our Series 4 product with its unique form factor. Our Series 6 module, which has a larger form factor consistent with other technologies deemphasizes the need for our in-house EPC solution. As previously noted, this transition to leveraging third-party EPC services in The United States is not expected to impact any projects under construction and slated for delivery this year. Turning to Slide four. As mentioned previously, our second Perrysburg facility commenced production approximately 1 quarter ahead of schedule. And we expect it to ramp, to be completed by the end of the first quarter of 2020. As discussed on prior earnings call, by removing certain finishing constraints through inventory buffers and limited additional tooling, we expect to increase Perrysburg 2 nameplate capacity to 1.3 gigawatts, resulting in a total nameplate capacity in Ohio of 1.9 gigawatts. The accelerated start of manufacturing has a potential to add up to 80 megawatts of incremental output in 2019. However due to production timing and quality review, we do not expect any impact to 2019 revenue guidance associated with this change. The same process improvements will be applied across the balance of the production fleet and we expect a comparable increase in nameplate capacity once they are fully ramped in 2020. Starting on Slide five, I'll provide an update on our Series 6 production metrics. On a fleet wide basis, since the Q2 earnings call, we continue to see significant operational improvements. Comparing October month to date metrics against the month of July, megawatts produced per day is up 8%. Capacity utilization has increased 6 percentage points to 100%. The production yield is up 2 percentage points to 93%. The average watt per module has increased 4 watts, and the top production bin is 435 watts. And finally the percentage of modules produced with an antireflective coating has increased 5 percentage points to 96%. The combination of our efficiency improvement program and increased ARC utilization has led to a significant improvement in the module bin distribution. The ARC bin distribution between 420-watt to 430-watt modules is up 5 points to 92% of production. Relative to our efficiency road map, there were a couple of noteworthy accomplishments during the quarter. Firstly, following the implementation of the latest process refinements in our lead line in Ohio, we've started to produce our first 440-watt bin modules. Leveraging these refinements with upcoming process nodes, we have recently provided sample modules to drone offer who have measured and validated a 19% aperture area efficiency, which is 447 watts peak and is a new world record cad tel module. This is a tremendous accomplishment by our world-class R&D and manufacturing teams and further validates the near-term compatibility of our technology. Secondly, our continued investment to improve long-term performance of cad tel sales has resulted in a significant scientific advancement. As some of you may know, copper circuit has a critical role in the cad tel device. Through our recent R&D efforts, we have successfully replaced copper with an alternative material, which dramatically improves device performance. More importantly, the high-efficiency devices demonstrate an improved long-term degradation rate, a significant benefit to PV plant economics. While yet to transition this advancement to our commercial products, we expect the combination of improved efficiency and long-term degradation will further enhance the competitive advantage of our technology and gives us confidence in our long-term road map. At the beginning of the year, we laid out an aggressive Series 6 cost per watt reduction target for 2019 and we -- as we expected a drop in Series 6 cost per watt from Q1 to Q4 of approximately 30%. Relative to our expectations for Q3, we are pleased with the progress made and are slightly ahead of the road map laid out during the 2018 year-end earnings call which took place in February. On a fleet-wide basis, throughput is ahead, efficiency is in line and yield is slightly behind. By region, our low-cost factories are performing well. And specifically with the faster ramp of our second Vietnam factory, we are seeing a cost per watt benefit. However, our Perrysburg facility is behind expectation and facing some significant headwinds. We continue to see challenges to the build materials, including aluminum and glass as we work through our supply chain strategy to mitigate the impact of tariffs. In addition, our labor and sales freight cost remain above plan. Looking forward to Q4, we expect continued improvements in our low-cost factories which will in the year in line with our expectations. However, Perrysburg will be challenged for the reasons mentioned as well as the earlier production ramp of our second factory. Our current view is that on a fleet-wide basis, we'll exit the year approximately $0.005 higher than target we set at the beginning of the year. Turning to Slide six. I'll next discuss our bookings activity. In total, we have 5.4 gigawatts of net bookings in 2019, including net bookings over 1.1 gigawatts since the last earnings call. After accounting for shipments of 3.8 gigawatts in the first 3 quarters of the year, our expected future shipments are 12.4 gigawatts. Our net bookings since the last earnings call were almost exclusively for Series 6 product, and were approximately 85% in North America with the remainder in Europe. This includes 0.3 gigawatts previously included in our mid- to late-stage pipeline signed but not booked opportunities. Following these most recent bookings, we are sold out through the remainder of '19 and full year 2020. We are largely contracted through the first half of '21 and approximately 2/3 booked relative to the 2021 supply plan of 6.5 gigawatts. Note, this excludes anticipated future systems projects that currently recognized as bookings. We also now have collectively over 1 gigawatt booked for 2022 and beyond. The bookings included 75 megawatts for our Willow Springs project. This booking is related to our previously disclosed petition to the PG&E bankruptcy court to terminate the PPA. During the third quarter, the bankruptcy court granted the petition and we terminated the PPA, which will allow us to remarket the project to another offtaker. With year-to-date net bookings of 5.4 gigawatts, we have achieved our target of 1:1 book-to-ship ratio in 2019, approximately two months ahead of year-end and continue to see ongoing demand through the remainder of the year. Slide seven provides an updated review of our mid- to late-stage bookings opportunity, which now total 8.1 gigawatts DC, an increase of 2.1 gigawatts from the prior quarter. And factoring the bookings for the quarter, 1 gigawatt which were included as opportunities in the prior quarter, our mid- to late-stage pipeline increased by 3.1 gigawatts. Additionally, the pipeline includes 0.3 gigawatts of confirmed opportunity awaiting satisfaction of outstanding conditions precedent before being recorded as a booking. As a reminder, our mid- to late-stage pipeline reflects those opportunities we feel could book within the next 12 months and is a subset of much larger pipeline of opportunities, which includes 15.2 gigawatts DC, which increased 1.9 gigawatts from last quarter. This includes 1.6 gigawatts of opportunities in 2020, which provides demand resiliency to our near-term production, while maintaining 13.6 gigawatts of demand would be for module deliveries in 2021 and beyond. In terms of geographical breakdown as the mid- to late-stage pipeline, North America remains the region with the largest number of opportunities at 5.8 gigawatts. Europe represents 2 gigawatts with the remainder in Asia Pacific. In terms of segment mix, our mid- to late-stage pipeline includes approximately 2 gigawatts of systems opportunities across The United States and Japan with the remainder module-only sales. Our energy systems business continues to perform strongly with an additional 1 gigawatt contracted since our previous earnings call. This brings new bookings in 2019 to 2.6 gigawatts and our total energy services portfolio under -- of asset under contract to nearly 14 gigawatts levels. Before I turn the call over to Alex, I would like to cover a few items. Firstly, I would like to note that we are pleased with The United States trade representative's decision earlier this month to withdraw its exclusion for bifacial modules from the Section 201 in port tariffs. This decision supports a level playing field for manufacturers such as First Solar that innovate, manufacture, invest and create jobs in America. Secondly, as First Solar celebrates its 20th year since its founding, we would like to take a moment to reflect on the incredible strides the company has made and the solar industry has experienced over that time. What was once produced as a niche technology has evolved into a global company with upstream and downstream capabilities. From establishing the industry's first PV module recycling program in 2005 to breaking numerous cost per watt barriers, to having our 10 gigawatts of solar assets under operation and maintenance management, to shipping over 25 gigawatts of module since our founding and today having 5.5 gigawatts of capacity of our new Series 6 module. First Solar has continued to evolve its business model to remain competitive and differentiated in a constantly evolving market. We have done all of this as a U.S. headquarter company with its manufacturing and technology roots in Perrysburg, Ohio, and our advanced research and technology capability centered in California. Among our competitive differentiators, including our technology differentiation, industry-leading balance sheet strength and a sustainability advantage, we are in a fortunate position of being sold out through the second quarter of 2021, with significant bookings visibility throughout the balance of that year. This visibility over a multi-quarter horizon has allowed us to be discerning of the opportunities that have availed themselves over the years. Finally, our competitive financial position enable First Solar to continuously evaluate the cross structure, competitiveness and risk-adjusted returns of each of our product offerings, including the module, development and O&M businesses. As discussed, we have evaluated our EPC capability and are transitioning to a third-party execution model. As a result of this transition, approximately 100 associates directly associated with our EPC capabilities will leave the company. But this evaluation has not been done in isolation. Since announcing the launch of Series 6, we have contracted over 15 gigawatts and have created a position of strength with a multiyear pipeline. However, we cannot be complacent. Whether now is the time to challenge ourself to secure the right long-term sustainable cost structure for our module manufacturing, development and O&M businesses in order to best position each for success over the next decade. We expect to conclude this very in-depth review and communicate the results at the end of the first quarter of 2020. I'll now turn the call over to Alex, who will discuss our third quarter financial results and provide updated guidance for 2019.

Operator:

[Operator Instructions] Our first question comes from Philip Shen with Roth Capital Partners. Your line is open.

Alex Bradley:

Yes, with regards to the projects in the U.S. we have 3 assets, Sunshine Valley, Sun Streams and Windhub projects, and we have signed deal to sell those assets. And that was signed after the end of the quarter, so you're not seeing that reflected in the financials of Q3. We'll expect that to close in Q4. So obviously, there is always some risk until we get to close, but we're through the commercial negotiation of getting through to final conditions precedent to closing. So high level of confidence in those assets, when it comes to the full year, the forecast has 3 projects from Japan in it, our Ishikawa asset, Miyagi asset and our Yes, it enemies your asset. As of now, the three are all structured to be sold under 1 fund structure together. The typhoon event in Japan has had an impact on one of our assets. As we mentioned in the prepared remarks, we're just trying to get access to the site and understand the damage there. Now from the very preliminary views we have, we think the damage to the site has not been extensive, however the damage perhaps to the surrounding area and potentially the gym was still waiting to get an assessment of that. And when we look through that, obviously there is insurance on the site as well. So it's early to say, but a very early indication would seem to be that from an economic perspective will be okay. From a timing perspective, it is still unknown. So those 3 assets are all in the guidance. They all due to be sold together. If we have a delay in one of them, that could potentially delay all of them. As I mentioned in my remarks, we do have the ability to sell those assets individually as well, there could be some delta in value doing so. We have obviously structured the fund because we think that's the optimal structure and optimal value for all 3 assets. So as of now, they're in the guidance. We'll get more information over the coming weeks. And the other key is the 2 things. One, we are not going to compromise the value. So if we get to a point where we could sell those asset out and selling this year, then we would be destroying value by doing so. We won't do that. We'll keep them all together. And the second is, if there is a delay in selling the asset, it's simply a timing shift. It just pushes out from Q4 into the next quarter. So it's not a change of value, it's simply timing of revenue and margin. So that's the project piece. Now the shipments?

Philip Shen:

I think we calculated 1.6 gigawatts of shipments in Q3. Sometimes you guys ship, but don't necessarily recognize those megawatts in revenue. So did you recognize all 1.6?

Alex Bradley:

And Phil, if you're trying to work it forward from last quarter, we said last quarter we had about 1.4 gigawatts of shipments and about 1/3 of that recognized revenue, 1/3 of that was shipped to our systems assets. Didn't recognize revenue, a 1/3 went onto the module business and didn't recognize revenue. So as you carry over the module shipments in Q2 that didn't rev rec in Q2, will rev rec in Q3, however, the shipments that went to our systems assets in Q2 may likely not have done still because a lot of that will have been associated with the assets that we haven't recognized revenue on yet and completed the sale.

Julien Dumoulin-Smith:

Hey, guys, good afternoon.This is Julian. Just to follow up very quickly on the last question, if you don't mind. Can you clarify just which projects are included in this year's Is that the $0.50 and specifically here this has to be SCE project so this time and I closed on, just again decided to come back on just maybe as to clear about what this year versus next year? And I'll leave there. I got a follow-up.

Alex Bradley:

Yes. To expand the previous answers, so Ishikawa asset, Miyagi asset and f7 enemies USA. asset. So all 3 of those are currently in the guidance forecast for the year.

Alex Bradley:

Let's say, the comment given was around, if we do not sell those Japan assets, we could see coming in $0.50 below the low end of the range of guidance.

Mark Widmar:

Yes. So again, the $0.005 actually higher than our target, right? So if you look at across the fleet, exiting the year, we'll be about $0.005 higher across the fleet. And again, putting in perspective, that was a 30% reduction from where we started the year and we are talking about a few percentage points that will be above that number from our current view. We are sitting -- we are better than where we had anticipated through 3 quarters, but we got a couple of headwinds that I mentioned in the call, mainly impacting our Ohio factories. And I think factories because when we began the year, we did not anticipate the start of Perrysburg 2. So the target that we gave you would not have had Perrysburg 2 in that number. And so Perrysburg 2 start-up and, again, underutilization and just general ramp and initial production means being lower than average, while we are now starting using ARC this week, we started it by Monday. ARC will start to be commissioned this week. We actually are getting good bins without ARC and when we include ARC, we'll see better bin, but they will be slightly lower bins in the overall distribution across the fleet. So you got a little bit of start-up, underutilization, referred to that, so bin distribution is not nearly where the fleet average is. So face a little bit of headwinds. Combine that with the tariff-related costs that we have on our U.S. manufacturing is impacting the overall fleet by about $0.005. We are in the process -- we largely have resourced our cover glass to avoid tariffs. But even there, we're seeing slightly higher cost than we would have otherwise. We're still working through our aluminum frame around resourcing of that aluminum that would bring the tariff down, so that will help drive cost out as we go into next year. But the other levers around costs will be further throughput advantages and so what we have indicated, we're already starting our Perrysburg 2 with higher nameplate capacity, almost another 100 megawatts. We'll leverage that across the existing fleet. So that incremental throughput will drive better cost per watt average. The efficiencies are already improving, our top bins right now are 435. We've just started to reach 440. So as we roll that higher efficiency higher watts across the fleet next year, we're going to see benefits from that as well. So there's a lot of positives that will help drive costs down further next year, but we do got to figure out we still have some labor inefficiencies that we are working through, sales freight in U.S. in particularly for various reasons is higher. And we got to find a way to bring that down. So there are some headwinds. But as I look across the long-term horizon and ultimate destination where it will end up, we're very confident that we'll meet the target that we set out for with Series 6. So we are dealing with some near-term headwinds and we're evaluating obviously what that potential impact, if any, will flow into next year.

Brian Lee:

Hey, guys, thanks for taking the questions. First one just on the gross margin, Alex. Lots of moving parts here for the module segment. Excluding the warranty item, thanks for breaking that out, the gross margin, I guess, is implied to be 18% there, but then there's some other moving parts. You mentioned the pull forward on Perrysburg 2, I think $10 million, some ramp-up costs and then some other items. So if we adjust for all of that, I'm getting to something in the low 20s sort of as a clean gross margin for the module segment. Is that fair or we maybe missing something else there? Maybe if you could walk us through some of the moving parts? Then I had a follow-up.

Brian Lee:

Okay. Fair enough. And just on that point, there is nothing from the Q3 quarterly result that would repeat in Q4. And then just to make sure I get my following in, just on the capacity here, last December, on the update call, you talked about 5 to 5.5 gigawatts of production in 2020 as the target range, I think with Perrysburg two, four, three months, maybe some optionality to keep Series 4 online through Q1 for safe harbor. How should we be thinking about that range? It seems like it has some upside at this point and also with the debottlenecking?

Alex Bradley:

Yes, and then it relates to capacity next year for -- Brian, I mean, we're not in a position yet to give guidance on that, but I will say that the early start of Perrysburg, in fact, if we allows us now, we -- we'll have more production out of Perrysburg 2 in 2020 than we would have otherwise. I mean I'm really happy with where we're starting off. I think the initial bin that we're seeing is coming across the production line is really good. And throughput, we expect to make meaningful progress of ramping up through -- between now and the end of the year. So our leaping off point, exiting this year and entering into next year, will allow us an opportunity to get incremental production in 2020 out of our Perrysburg 2 factory. The other items, in terms of incremental throughput, debottlenecking and other things that we can do across the fleet, that exists as well. So we highlighted that our nameplate capacity, we are right now at 5.4. That does not include the additional debottlenecking and other things that we can do across the other factories. So there's a little bit of upside there. So I would say, we were comfortable that our share will be at the high end of the range that we previously guided to for production for next year and we'll see where we can go above and beyond that. Including this one, I think we were highly motivated to start a production, not only because we were ready but obviously driving that through and ramping that factory gives us incremental capacity next year and a very strong demand opportunity set for us. And hopefully, with that incremental throughput, we'll drive better revenue for next year as well.

Ben Kallo:

Hey, thanks, guys. Maybe going back to the Analyst Day and your margin targets. Can you just talk about where you are with hitting those targets? And then how, I guess, changing from the EPC business to module sales changes that overall model? And then maybe just a little more context what the $0.005 within your target means? You still get to that greater than 20% gross margin on Series 6?

Alex Bradley:

Ben, just to add on the EPC piece. I think we guided -- that I don't say about 1.5 years ago, nearly two years ago now to a 5%, 10% gross margin business in EPC. So that is going to come out as we don't perform in EPC. We're also at the same time as we commented taking cost structure out and we pointed to $10 million to $15 million of annual recurring savings as we exit the EPC business. So going forward, you may see a change in top line revenue as we exit the internal performance of that function. On an overall consolidated basis given the EPC was a low-percentage margin business, you should see a beneficial impact across the consolidated gross margin.

Jeff Osborne:

Good afternoon, guys. I was just wondering in terms of the -- post the bifacial decision, can you talk about what you're seeing in terms of the broader market discussions you're having into the closing months here of safe harboring? Is there any heightened activity? Or is it too late to safe harbor at this point?

Operator:

Your next question comes from Paul Coster with JPMorgan. Your line is open.

Operator:

Our next question comes from Michael Weinstein with Credit Suisse. Your line is open.

Mark Widmar:

What I would say, I mean, that 40% number, if I look at it at our -- let's say, our lowest-cost factory today, not only because of just the region but also because we're running 2 production lines in Vietnam. Vietnam right now because of that, and one of the things that will happen when we put our second factory in Malaysia, it will be able to leverage the tool set across both factories, which we know helps drive throughput and manage through downtime and other things that create headwinds around your cost profile. Vietnam is our advantage factory today. And when I look at where that cost is, as we exit this year relative to that 40% target, we'll be in a very good position to have achieved that number. When I look at the fleet, we're slightly behind, mainly for the reasons that I mentioned. And that's what we have to work on in terms of getting at the end of this year. It doesn't mean that the destination is going to change. There's many levers we can get to get to the destination, but at this leaping off point, we're about across the fleet about $0.005 higher than where we need to be, and we've got to figure that one out.

Alex Bradley:

No. Mike, if you look at guidance, I mean, I commented in the script, right, on the module side, we've a lot of moving pieces in terms of when we shut down Series 4 and transition that over to Series 6. If you go back to early 2018, at that point, we'd have said we are planning on shutting down that Series 4 at the end of 2018. There was a surge of demand around the safe harbor especially. We had a large customer order come in that pushed us with that volume all the way out through the back end of 2019. We are actually in a position right now, where one of our customers around Series 4 is potentially in some financial distress. Now we have security against those bookings, but we're looking to optimize our risk profile that may make sense for us, one of our risk and value timing, potentially reduce some of that Series 4 earlier than planned, helps us convert earlier to Series 6 and get to a more advantaged product and technology. So there's some uncertainty for us around the module business around when we make that call. There is significant uncertainty around timing in the systems business, as I mentioned earlier, this is timing of value. But right now we've got U.S. assets that -- even since the end of the quarter, we signed a deal, although we still haven't closed that. That's a positive step, and we'd expect to close that, but those need to close. And as commented earlier, we've got significant uncertainty around what's happened in Japan. And only 2 weeks ago, we saw a typhoon go through, which is completely unforecasted and unplanned. So we've got all those moving pieces, and I think as Mark mentioned in his prepared remarks as well, we're also doing a deep dive into the cost structure across the entire business. And so we've made the decision around transitioning our EPC approach to third parties. And as part of that, we're looking at the isolated cost to remain in the development business as well as looking at all the business units, including the module to make sure cost is competitive across every business unit. So with all those moving pieces, it's not the case of having 1 binary outcome. We could guide to an A or B scenario. In this case, we've got a lot of different moving pieces. It makes it very hard to give an accurate guidance. So we would rather get through all of those and come out in February with more accurate numbers.

Operator:

Our final question will come from the line of Joseph Osha with JMP Securities. Your line is open.

Mark Widmar:

The way, the way we always try to phrase it is that we are very much demand during the demand driven drives supply and in our supply capacity plan roadmap and as we get more and more comfortable and confident with the volume in 2021, but again we're about two-thirds right now. Plus, you got an corporate call it a gigawatt or so of our systems business relative to that original supply a 6.5. We're starting to get to a point to have more confidence in 2021. And I also like that we're starting to fill up some '22 and beyond. So the more, the better we do with bookings and the more we look out into '21 and beyond. It gives a higher level of confidence optimize and make sure we drive the highest pipeline, but it's always going to be aligned to the demand that we see highly predictable demand to ensure we can scale and ramp that capacity efficiently because of the customer off-take requirement for that product. But yeah, we're not in a position on this call to give revised numbers we've been measuring ourselves against is what we communicated that was a 6.5 gigawatt supply plan for up 2021 and as we learn more, we'll give you the best information we can at that point in time.

Operator:

Good afternoon, everyone, and welcome to First Solar's Second Quarter 2019 Earnings Call. This call is being webcast live on the Investors section of First Solar's Web site at investor.firstsolar.com. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Adrianna Defranco from First Solar Investor Relations. Ms. Defranco, you may begin.

Mark Widmar:

Thanks, Adrianna. Good afternoon and thank you for joining us today. I'll begin by noting our second quarter loss of $0.18 per share. Despite this result, due largely to increased variable compensation expense associated with the company's short-term and long-term incentive plans, and increased tax expense, which Alex will address, we put a number of wins on the board during the quarter, and are maintaining our full-year earnings per share guidance. The Series 6 program remains on track with improvement across all key manufacturing metrics. Q2 saw the greatest quarterly production run in the company's history. From a bookings perspective, we recorded our largest ever individual order for Series 6 module, and from a shipment perspective we recorded record quarterly shipments. These highlights are a reflection of the team's continued excellence in a very dynamic and changing business environment. Turning to the market, catalysts driving increased PV penetration continue to point to growing global momentum and strong demand. On our last earnings call, we discussed our optimism for utility-scale solar growth driven not just by pure economics, but by the groundswell of communities making strong actionable commitments to renewable energy. The recent uptick in government commitments coupled with growth in corporate activity provide the underpinning for secure and stable growth. In many regions the solar industry has reached a cost inflection relative to coal. In the U.S., the Energy Information Administration has identified a trend of younger and larger coal plants shutting down. And a study by Energy Innovations, released in March, showed that it would be cheaper to replace 74% of U.S. coal with new wind and solar. The study further found that replacing 94 gigawatts of existing coal plants with wind and/or solar would result in a 25% reduction in energy costs. In Europe, the first-half of 2019 saw renewable energy outproduce fossil fuels for the first time. These are just some of the encouraging signs of sustainable growth we see. Shifting to the domestic market, we pointed out during our last earnings call that three states have adopted active mandates to reach 100% clean electricity standards with over a dozen or more committed to nonbinding goals. As of today, eight states enacted a 100% clean and renewable energy goals, and an additional 29 states plus Washington, D.C. are targeting nine binding energy targets. Another trend gaining traction in the U.S. relates to battery storage. Deployment of grid-connected energy storage in the U.S. are expected to hit over 700 megawatts this year, and are projected to reach 2.5 gigawatts by 2023. Moreover, the economics of these projects signal that in certain regions today clean and dispatchable energy can be made available for less than the cost of new natural gas. We also continue to see growing momentum among corporates seeking to decarbonize their electricity. 2018 saw over 13 gigawatts of corporate PPA agreements, doubling 2017 levels, with new buyers and emerging markets tipping the scale. Since our comments last quarter, companies in France and Poland signed corporate power purchase agreement for large-scale solar, making a first for these nations. We continue to solidify our position as a leading global provider of corporate solar solutions by providing clean or eco-efficient solar technology. On Tuesday this week, we just announced jointly with Microsoft, that our Sun Stream 2 solar facility will power Microsoft's new energy-efficient datacenter being built in Arizona. We are thrilled Microsoft values our Series 6 technology, especially given its lower carbon footprint and superior environmental profile compared to crystalline silicate. We look forward to providing Microsoft cleaner solar electricity. Earlier in the quarter, we announced that our Cove Mountain 2 solar power plant would support Facebook's Eagle Mountain datacenter in Utah through a PPA with Rocky Mountain Power. The project will be constructed near the 58 megawatt Cove Mountain power plant, which we announced last year will also support Facebook's operations. Continuing this trend, we announced last week that Kellogg's Australia and New Zealand signed a PPA with the Beryl Solar Farm, developed and operated by First Solar, in New South Wales. Finally, the utility scale market in the United States continues to thrive. Notably, we're seeing an increase in multiyear module sales agreements driven by our customers' need for pricing and technology certainty and our commitment to stand behind our contracts. Starting on slide four, I'll provide an update on our Series 6 production metrics. As a reminder, we began production at our first Series 6 factory in April, 2018, and over the subsequent five quarters we have continued to ramp production in the U.S., Malaysia, and Vietnam. Leveraging our control replication process, we are operating four factories which are matched in terms of key processes, and which have produced 1.9 gigawatts year-to-date. Reflecting on the significant progress we've made over relatively short period of time, we are pleased with the Series 6 in terms of scheduled performance and cost. On a fleet-wide basis, since April, we have seen significant operational improvements. When comparing performance for the month of April to July, meaningful improvement can be seen. Megawatts produced per day is up 16%. Capacity utilization has increased 12 percentage points to 94%. Adjusted for planned downtime the fleet capacity utilization was 96%. Note, in support of our module efficiency roadmap, in July, we increased the volume and engineering test articles which adversely impact the capacity utilization by one percentage point. The production yield is up two percentage points to 91%. The average watt per module has increased three watts. And finally, the percentage of modules produced with antireflective coating has increased by five percentage points to 91%. The combination of our efficiency improvement program and increased arc utilization has led to a significant improvement in the module bin distribution. In July, the arc bin distribution between 420-watt to 430-watt modules represented 87% of production. Our best factory had arc utilization of 95%, with 94% of the production volume at a 420-watt bin or higher. With 893 megawatts produced, Q2 continues our planned production ramp. And we have carried the momentum into July where we are experiencing our best ever production month, with 322 megawatts produced. On an individual plant level, all the factories are performing well. At our second factory in Vietnam, the production metrics are ahead of plan, and within six months of commencing operation consistent with the fleet average. This is a direct result of learnings from prior factory ramps, and the synergies realized by having a multi-factory site, which effectively leverages the width inventory buffers across two factories, and creates additional equipment redundancy. We would expect these similar benefits when we start up our second factory, in Ohio, where construction is continuing according to schedule. The first tools installed in June. Note, as a highlight during our Q1 earnings call, our new Ohio factory will include additional capital which, among other improvements, will target a 5% increase in the nameplate capacity. Depending on our ability to realize the target capacity increase, we will look to roll out this program across the fleet. We anticipate starting the production in early 2020, with the possibility of pre-qualified production in Q4, 2019. The progress we have made ramping our factories has been a key contributor, enabling the achievement of our Series 6 cost per watt objectives for the first-half of 2019. While this is a significant accomplishment, there is tremendous amount of work still in front of us in order to achieve our cost per watt roadmap for the full-year. As we noted in our April's earnings call, our Series 6 cost per watt is expected to drop approximately 30% from Q1 to Q4. Turning to slide five, I'll next discuss our booking activity. In total, we have 4.3 gigawatts of net bookings in 2019, including net bookings of over 2 gigawatts since the last earnings call. After accounting for shipments of 2.2 gigawatts in the first-half of the year, including record quarterly shipments of 1.4 gigawatts in the second quarter, our future expected shipments are 12.9 gigawatts. As it relates to the systems business, we converted two opportunities in Japan from our mid to late-stage pipeline and just 77 megawatts of bookings with expected deliveries through 2022. With these projects, our footprint in Japan has grown to approximately 400 megawatts. We continue to believe in the strength of our portfolio of systems opportunities in Japan and we could double our existing systems bookings there by the end of 2023. The remainder of our net bookings for the quarter were module only bookings essentially all Series 6 product, international markets represented slightly more than 100 megawatts of the bookings. As I noted previously, we are seeing an increase in multi-year module sales agreements driven by our customers need for certainty in terms of the technology they are investing in and the certainty that we will stand behind our contracts. Representative of this, we have secured our largest Series 6 agreement with a new customer to supply 1.7 gigawatts of deployment of projects across the U.S. We've also secured a 0.3 gigawatts booking with another new customer in the United States. Note this is the first phase of the project with a similar sized second phase included in our contracted pipeline and awaiting confirmation of conditions precedent to become a booking. We are particularly pleased with the strength of the bookings in the quarter despite the decision in June at the Office of the U.S. trade representative to exempt bifacial panels from Section 201 tariffs. But we are able to contract through this headwind it's important to note that the disappointing decision which in our view has the effect of undermining the administration's efforts to secure a level playing field for U.S. solar manufacturing introduces a new source of uncertainty going forward. Since the last earnings call related to certain customer and specific events, we have booked 0.3 gigawatts scheduled to be shipped in 2019 and 2020. These events included the combination of a customer's request to support their revised project development schedule and project size as well as settlement of an ongoing dispute with the customer which originated over the potential sale of one of our systems projects. Although these events had an adverse impact to our previously contracted module backlog given our robust pipeline we were able to contract the volume with other customers. More importantly we view the resolution as an investment in long-term customer relationships. Turning to slide six, we show the forecasted supply plan for the second half of 2019 through full-year 2021. As noted in the Q1 earnings call we are effectively sold out through the remainder of 2019 and full-year 2020. With the most recent bookings, 2021 is starting to book up relative to an anticipated supply plan of 6.5 gigawatts. For full-year 2021, we booked and contracted volumes subject to conditions precedent representing approximately 60% of the supply plan. This leaves approximately 2.5 gigawatts to be booked in 2021. Note, approximately half of the remaining volume is anticipated to be needed for our self development systems business, seeing our Systems business demand is level loaded by quarter in 2021, we are largely sold out for third-party module sales in the first half of 2021. We remain pleased with the bookings momentum and have increased confidence in achieving or exceeding our target one to one book to ship ratio in 2019 even as we continue to contract for deliveries over two years in advance. Slide seven provides an updated view over a mid to late-stage bookings opportunities which now totals six gigawatts DC, a decrease of 0.6 gigawatts from the prior quarter when factoring in bookings for the quarter point, 0.6 gigawatts which were included in the opportunities in the prior quarter, our mid to late-stage pipeline remains unchanged. Additionally, the pipeline includes 0.6 gigawatts of confirmed opportunities awaiting satisfaction of outstanding conditions precedence before being booked in the quarter. As a reminder, our mid to late-stage pipeline is reflective of those opportunities, we could fill would book within the next 12 months. And as a subset of a much larger pipeline of opportunities which totaled 13.3 gigawatts DC, which increased 1.6 gigawatts from last quarter. This includes 0.8 gigawatts of opportunities in 2019 and 2020 with revised demand resiliency to our near-term bookings production, while the remaining 12.5 gigawatts of demand would be for modules delivered in 2021 and beyond. In terms of geographic breakdown of a mid to late-stage pipeline, North America remains the region with the largest number of opportunities at four gigawatts DC. Europe represents 1.5 gigawatts with the remainder in Asia-Pacific. In terms of segment mix, our mid-to-late-stage pipeline includes 1.9 gigawatts of systems opportunities across the U.S. and Japan, with the remainder being module only sales. The significant increase in systems opportunities largely attributed to U.S. opportunities associated with the ITC Safe Harbor. We have also had significant success across our energy services business with year-to-date bookings of over 1.6 gigawatts D.C. Approximately 0.5 gigawatts was associated with the sale of development assets. With the remainder 1 gigawatts was contracted with project developed by third parties. This brings our total energy services portfolio of assets under contract to nearly 13 gigawatts globally. Before turning the call of an Alex, I like to discuss recent developments related to the ongoing class action lawsuit, which was filed in 2012. As previously discussed, in August of 2018, we filed a cert petition with the U.S. Supreme Court concerning the appropriate standard to determine loss calculation. We identified various standards across several circuits and did not believe the standard used in the ninth circuit, which is the standard that will apply to this case was appropriate. We were supported by the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, the Business Roundtable and other groups who filed an amicus brief with the court in support of our position. At the end of last month, the Supreme Court denied the cert petition. Well, we are disappointed with the denial. We continue to believe we have meritorious defenses and are vigorously defending this case. Also, as previous disclosed from following the results of the Supreme Court, the Arizona District Court ordered that the trial begin in January, 2020. I'll now turn the call over to Alex, who will discuss our second quarter financial results and provide updated guidance for 2019.

Operator:

[Operator Instructions] Your first question comes from Philip Shen with ROTH Capital Partners. Your line is open.

Mark Widmar:

All right, Phil. On the cost per watt and what I did say in my prepared remarks was that we're happy with where we are right now. We met our first-half commitment on the reduction. And as you remembered, it was a pretty steep reduction from first quarter into the second quarter. So we're happy with the first-half results. Still work to be done yet to get to the second-half, a number of things. If you look at the first-half, I mean a lot of it was driven by -- utilization has come up significantly. We've driven up throughput improvements dramatically. Yields have improved significantly. They're all in the metrics that we reflected in the deck, and I referenced it in my comments. And you can clearly see the benefit of that driving down the cost per watt. As I look across what still needs to happen for the balance of the year to get to our cost per watt, it's -- there's no one silver bullet. It's one of many things. We've got labor that needs to come out when we -- through the ramp process and starting of production. We threw a lot of labor into the manufacturing process that we're now in the process of taking out, so there's a pretty significant reduction of labor that should get down the entitlement, where we expect it to be, but in the early ramp phase we threw labor into the process in order to continue to run operations at the highest throughput levels that we can. We've got some building material opportunity still that we've got to capture. We've got negotiations ongoing right now to realize that benefit. And then on top of that there's still -- we got to get the yields up. Yields are at 91%, we got to get those numbers past 95%, closer to 97%. So there's some work to be done there. We still have a little bit of room to go on utilization, so we've got to see that, and continue to drive throughput as to the highest possible optimization that we can. So there's a lot of levers, not one individual lever, but we feel confident with what we still need to do and our ability to get there, but there's a lot of heavy lifting still to go yet to get to the cost per watt for the second-half of the year. Bookings, we're very happy with bookings and where we are. And you can see from the slide that the bifacial exemption happened, I think it was either June 12th or something along that line, the bookings that we were able to secure with a couple of two key new customers, and both happened after that date. Not to say that there was an inflection point and discussions with the customer around ramifications around bifacial modules. I don't have any concern around our ability to compete with a bifacial module. It's just a discussion around where the economics land. So to me the bigger challenge we have, if the exemption stays where it is, that it ultimately compromises economics and the realization of what we can capture relative to our competition. The spirit of what was put in place under the Tier 1 was to allow companies to scale and to ramp manufacturing and to enhance overall cost competitiveness to deal with imported competitors. We made an investment, a significant investment in our factory in Ohio for that very reason, coupled with the tax reform that was provided. And what we had hoped for will duly allow our ability to ramp our new facility in an environment that wouldn't be under siege by a flood of imports. And I do think there's a risk that that could happen with the exemption as its current written, unless there's some form of a modification to it or either recession or some form of quota. I think it will create some challenges that we'll have to be able to deal with. So, yes, we're disappointed with that decision, as I said in my comments. Capacity expansion, if you look at 2021, as we highlighted in the slide there, the committed supply plan is basically about 6.5 gigawatts. If you look at it coupled with our systems business that we have -- we anticipate to have in 2021, we have about 1-1.25 kind of available capacity still in 2021. And we're focused on what we can do to potentially address that. We're very encouraged to hopefully see positive results with what we're doing in Perrysburg, as I indicated in my prepared remarks that it -- with that plant we'll go into the ground with additional capacity, about 5% to 7% incremental capacity. Which would say that at a name plate basis we could drive somewhere in the range of 60 megawatt to 80 megawatts, somewhere in that range of incremental throughput if we're successful, and what we'd like to be able to do is to then replicate that across the balance of the fleet, and continue to look for other opportunities for throughput. If you look at my prepared remarks, one of the things we highlighted was that the benefit we've seen in Vietnam is to have two factories co-located at one site, and then whether it's the leveraging of the whip [ph] buffers, whether it's the redundancy that you have around the toolset across both factories. So we know we want to leverage that across Malaysia, Vietnam, and the U.S. We've got the U.S. covered now, Vietnam is already addressed, and then we'll end the process by the end of this year we'll start the conversion of Malaysia. But then beyond that we just want to continue to drive throughput, because two things, efficiency and throughput are going to drive to our lowest cost per watt, and so we're very focused on doing that. We're continuing to evaluate options around how we can get additional capacity out of those factories. Plus, we still have the optionality if we choose to convert KLM 1-2, and so that's another 1.2 gigawatts that could be put into the mix. My first choice would be to optimize the efficiency and the throughput levers first, and then look to an expansion or I should say a conversion to KLM 1-2. A lot of different options and things and scenarios that we'll have to evaluate, but very happy with the demand and supply backlog that we currently have in the contract, and now really almost through the next 10 quarters.

Julien Dumoulin-Smith:

Hey, good afternoon everyone. Thank you for the time. Maybe to just pick up where you just left off, in fact, why don't we talk a little bit, if you can, on this cost per watt trajectory, not just heading into 4Q, and I appreciate what a lift that may be already. How do you think about that over time here especially as you think about the scaling the megawatts here too? I mean just -- I want to focus on the cost per watt metric and where we can go from here. And I don't want to preempt too much guidance into '20 specifically, but trajectory-wise, how much more is there to go sort of overall, especially as you see these other products continue to trajectory on cost themselves, be it bifacial or otherwise?

Julien Dumoulin-Smith:

If I can just quickly ask on the incremental bookings for ASP, how firm is the market at this point? We saw some uptick in pricing for the first time in a while in the U.S. Obviously bifacial is impacting things now, but just where are we on the incremental bookings. And just if you can talk a little bit on market pricing today, as you've already alluded for bifacial?