First Solar, Inc. (NASDAQ:FSLR) Q2 2023 Earnings Call Transcript

First Solar, Inc. (NASDAQ:FSLR) Q2 2023 Earnings Call Transcript July 27, 2023

First Solar, Inc. misses on earnings expectations. Reported EPS is $0.52 EPS, expectations were $0.96.

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.

Richard Romero: Good afternoon, and thank you for joining us. Today, the company issued a press release announcing its second quarter 2023 financial results. A copy of the press release and associated presentation are available on First Solar’s website at investor.firstsolar.com. With me today are Mark Widmar, Chief Executive Officer, and Alex Bradley, Chief Financial Officer. Mark will provide a business update. Alex will discuss our financial results and provide updated guidance. Following their remarks, we will open the call for questions. Please note, this call will include forward-looking statements that involve risks, and uncertainties that could cause actual results to differ materially from management’s current expectations. We encourage you to review the safe harbor statement contained in today’s press release and presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer.

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: in Arkansas, Arizona and Mississippi. Staying on technology, we also announced during the quarter a limited production run of our first bifacial module panels, utilizing an advanced thin film semiconductor.

The module, which is undergoing field and laboratory testing, builds on the track record and energy advantaged attributes of First Solar’s successful Series 6 monofacial module platform. And we expect to begin lead line commercial production by Q4 2023. Notably, the bifacial model features an innovative transparent back contact, pioneered by First Solar’s research and development team. The transparent back contact, in addition to enabling bifacial energy gains, allows infrared wavelengths of light pass through rather than be absorbed as heat. This is expected to lower the operational temperature of the bifacial module, resulted in higher specific energy yield. We believe that the transparent back contact is a foundational step towards the development of future tandem products.

Similarly, our acquisition of Evolar, the European leader in thin film perovskite and CIGS technology, is also expected to accelerate the development of next-generation PV technology, including high efficiency tandem devices by integrating Evolar’s know-how with First Solar’s existing research and development streams, intellectual property portfolio, and expertise in developing and commercially scaling thin film PV. Moving to Slide 4. We continue to make steady progress at our manufacturing R&D facility expansions. Starting with India, construction of the factory is now complete, and pre-production testing of the installed tools is ongoing, with the first complete module having been produced in June. We expect this facility to begin production by the end of August this year.

And when fully ramped at 3.4 gigawatts of annual nameplate manufacturing capacity through our [indiscernible]. We’re also on track to expand and upgrade our Ohio Series 6 factory to achieve an additional aggregate annual throughput of 0.9 gigawatts, with the additional capacity expected to come online in 2024. Similarly, our new Alabama facility is also on schedule for completion by the end of 2024, with commercial operations ramping through 2025. This facility is expected to add 3.5 gigawatts of annual nameplate capacity once fully ramped, increasing our annual nameplate capacity in the U.S. to over 10 gigawatts by 2025. As it relates to our fifth U.S. manufacturing facility announced earlier today, we continue to evaluate siting options based on the availability of suitable land and related infrastructure, proximity to our supply chains, access to skilled labor and other factors, including the availability of state-level incentives.

We expect to announce our location decision shortly. Our dedicated R&D facility is also on track with construction well underway and tool sets ordered. As previously noted, this facility will feature a high-tech pilot manufacturing line, allowing for production of full size prototypes of thin film and tandem PV modules. This, we believe, will allow us to optimize our R&D efforts and progress, our technology roadmap with significantly less disruption to our commercial manufacturing lines. Note, since the announcement of the Inflation Reduction Act approximately one year ago, we have committed over $2.8 billion in capital investments into the United States across our existing Ohio manufacturing facilities, a new manufacturing plant in Alabama, a new research and development center in Ohio, and most recently, our fifth U.S. factory announced today.

We expect this will result in the creation of approximately 700 new direct jobs as well as multiples of this number in incremental indirect jobs, including across our supply chain. Before we move to the next slide, I would like to take a moment to discuss the policy environment and our key markets. Starting in the United States, we are appreciative of the work done by the Biden administration to issue IRA-related guidance on Section 48C, direct pay, tax credit transfers, and domestic content. We are pleased with the direct pay regulations issued during the quarter, clarifying that a five-year direct pay period under Section 45X may be elected on a facility by facility basis, which will benefit our previously announced factory in Alabama, as well as our new facility announced earlier today.

We are actively engaged with the administration and working with our customers to ensure that the guidance, particularly with regards to domestic content, will deliver on the IRA’s intent to sustainably grow U.S. manufacturing and [reshore] (ph) a vital clean energy supply chain. Before specific — more specifically on domestic content, we have shared our comments on the current guidance with the administration and are working to provide our customers with the direct cost information needed to enable their ability to benefit from the bonus credit for using U.S.-made content. Our U.S.-produced modules are well positioned to enable our customers to qualify for the domestic content bonus credit due to both our vertically-integrated manufacturing process where the entire module, including the cell, is manufactured in America, and our commitment to investing in domestic supply chains.

Today, our U.S. operations use a 100% U.S.-made glass and steel among other components. As it relates to trade, we are awaiting the Department of Commerce’s final determination in its investigation of Chinese manufacturers accused of circumventing U.S. anti-dumping and countervailing duties. We believe that the Department’s investigation is a step in the right direction and sends a clear signal that the United States remains committed to the rules of international trade law and to trade that is both free and fair. Relatedly, we applaud the role of U.S. Customs and Border Protection in enforcing the Uyghur Forced Labor Protection Act and its transparency in reporting statistics through a public dashboard. Given a significant undertaking required to execute its mandate under the act, we believe the agency needs to be more adequately resourced to ensure the enforcement is extended beyond the handful of high profile Chinese solar manufacturers currently being scrutinized.

The relatively narrow scope of enforcement would effectively allow lesser known solar panel manufacturers who may source their polysilicon from the Xinjiang region of China to freely export their products into the U.S. without risk of detention. Internationally, we continue to follow policy developments in Europe where the EU is working towards a path to energy self-sufficiency. While we are cautious [and that] (ph) the market, given the recent collapse in polysilicon pricing and the impact that irrationally cheap solar panels driven by oversupply and dumping into Europe may have on the political willingness to deliver a comprehensive legislative solution that both levels the playing field and incentivizes domestic manufacturing. While we remain engaged with the EU, we are pleased to see its member states move forward with their own plans to reshore solar manufacturing.

Most notably, Germany’s Federal Ministry of Economics and Climate Protection recently launched a request for expression of interest in a plan to build approximately 10 gigawatts of vertically-integrated solar manufacturing capacity in the country. The Ministry launched the initiative under the Europe’s Temporary Crisis and Transition Framework, and we intend to submit a non-binding express of interest. However, we continue to hold the position that manufacturing CapEx incentives alone are not an adequately sustainable solution with Europe’s challenges. If mechanisms are not put in place for domestic manufacturers to have a sustained level playing field for their capital investments, 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.

Moving to Slide 5. As of December 31, 2022, our contracted backlog totaled 61.4 gigawatts with an aggregate value of $17.7 billion. Through June 2023, we entered into an additional 13.6 gigawatts of contracted, and recognized 4.7 gigawatts of sold volume, resulting in total backlog of 70.3 gigawatts with an aggregate value of $20.8 billion, which equates to approximately $0.296 per watt, an increase of $0.08 compared to end-of-year 2022, and $0.028 per watt compared to June 30, 2022. Since the end of the second quarter to date, we have entered into an additional 7.5 gigawatts of contracts, bringing our total backlog to date to a record 77.8 gigawatts. Included in our backlog since the previous earnings call are contracts of approximately 1 gigawatt or more with new customers, capital power development, and Matrix Renewables USA, as well as with a large European customer.

We also signed and announced on July 16, a follow on 5 gigawatt deal with Energix Renewables, a leading Israeli developer and repeat customer; 4 gigawatts of which sits within our bookings and 1 gigawatt of which is contract subject to conditions precedent. In addition, we currently amended a previously booked deal with Energix, increasing the module ASP and committing to providing U.S. modules for 850 megawatts of their projects. Since the announcement of the IRA, we have amended certain existing contracts to provide U.S. manufactured products as well as to supply Series 7 modules in place of Series 6. As a consequence, over the past four quarters up to the end of Q2 2023, we have increased our contracted revenue by $312 million across 9.2 gigawatts or approximately $0.034 per watt.

Note, we are still progressing additional amendments associated with providing U.S. manufactured and Series 7 product, which we expect to be reflected in our Q3 contracted revenue backlog. As we previously addressed, a substantial portion of our overall backlog includes the opportunity to increase the base ASP through the application of adjusters, if we’re able to realize achievement within our technology roadmap as of the required timing for the delivery of the product. As of the end of the second quarter, we had approximately 36.4 gigawatts of contracted volume. With these adjusters, if fully realized, would result in additional revenue of up to $0.7 billion or approximately $0.02 per watt, the majority of which would be recognized between 2026 and 2027.

As previously discussed, this amount does not include potential adjustments, which are generally applicable to the total contracted backlog both for the ultimate module bin delivered to the customer, which may adjust the ASP under the sales contract upwards or downwards, and for increases in sales rate or applicable aluminum or sales commodity price changes. Finally, this amount does not include any remaining potential higher rate domestic content price adjustments in excess of the already amended 9.2 gigawatts referenced above. Our contracted backlog extends into 2030, including our most recent bookings. Excluding India, we are sold out through 2026. Note, some production from India is expected to be used to support U.S. deliveries in 2024 and 2025.

As reflected on Slide 6, our pipeline of potential bookings remains robust, with total booking opportunities of 78.3 gigawatts, a decrease of approximately 34 gigawatts since the previous quarter. Our mid- to late-stage opportunities decreased by approximately 24 gigawatts to 48.5 gigawatts and includes 41 gigawatts in North America, 5.5 gigawatts in India, 1.8 gigawatts in the EU, and 0.2 gigawatts across all other geographies. The decreases in total and mid- to late-stage pipeline from Q1 2023 to Q2 2023 are the result of both converting certain opportunities to bookings as well as the removal of certain other opportunities given our sold-out position and diminished available supply. They also reflect a removal of one large multi-gigawatt, multi-year opportunity, where we were unable to come to terms with the customer.

As we previously stated, we will continue to forward contract with customers who prioritize long-term relationships and value our differentiation. And given the strength and duration of our current contracted backlog, we will be strategic and selective in our approach to future contracting. Included within our mid- to late-stage pipeline are 6.7 gigawatts of opportunities that are contracts subject to conditions precedent, which include 1.9 gigawatts in India. Given the shorter timeframe between contracting and product delivery in India relative to other markets, we would not expect to save multi-year contracted commitments that we are currently seeing in the United States. As a reminder, [signed] (ph) contracts in India will now be recognized as bookings until we have received full security against the offtake.

Moving to Slide 7. While we will release our annual sustainability report in the coming weeks, we’d like to take this opportunity to preview a few highlights with you. As we have consistently noted, our commitment to Responsible Solar is not a tagline but our way of doing business. This commitment is underpinned by the belief that solar should never come at the expense of the environment or human rights, and drives our company’s environmental, social and governance strategy and differentiation. It is this commitment that has driven down our greenhouse gas emissions, energy, water and waste intensity per watt produced and increased the percentage of women in our workforce in 2022 relative to the preceding year. Our achievements build on previous year successes, and we have developed a roadmap with additional initiatives to reduce our absolute Scope 1 and Scope 2 greenhouse gas emissions by 34% by 2028 and achieve net-zero emissions relative to 2020 by 2050.

Crucially, we also recognize that we cannot get to net zero without a circular economy. And we continue to make progress on building circularity into our next-generation modules and manufacturing processes from raw material sourcing to high-value recycling with closed-loop semiconductor recovery. This is reflected in the fact that the Series 7 modules designed with sustainability in mind and is our most eco-efficient product to date. It’s also reflected in the fact that our new facility in India, which is located in a region of high baseline water stress, is designed to be net-zero water withdrawal PV manufacturing facility, which we believe to be the world’s first. As a purpose-driven company, we consistently hold ourselves to a higher standard and proudly set new benchmarks from the hope that by leading by example, others in the solar industry will follow.

I’ll now turn the call over to Alex, who will discuss our Q2 results.

Alex Bradley: Thanks, Mark. Starting on Slide 8, I’ll cover our financial results for the second quarter. Net sales in the second quarter were $811 million, an increase of $262 million compared to the first quarter. Increase in net sales was primarily driven by strong market demand that led to higher volumes sold, commencement of sales of our next-generation Series 7 modules and an increase in module ASP. Gross margin was 38% in the second quarter compared to 20% in the first quarter. This increase is primarily driven by the increase in module ASPs, lower sales rate costs and higher volumes of modules produced and sold in the U.S., resulting in additional credits from Inflation Reduction Act. Based on our differentiated vertically-integrated manufacturing model and the current form factor of our modules, we expect to qualify for a Section 45X credit of approximately $0.17 per watt for each module sold, which is recognized as a reduction to cost of sales in the period of sale.

During the second quarter, we recognized $155 million of such credits compared to $70 million in the first quarter. I encourage you to review the safe harbor statements contained in today’s press release and presentation and risks related to our receiving the full amount of tax benefit we believe we are entitled to under the IRA. The reduction in our sales freight costs during the quarter reflected improved ocean and land rates, the significant reduction in non-standard charges of container detention and demurrage, as well as a beneficial domestic versus international mix of volumes sold. The lower sales freight costs reduced gross margin by 8 percentage points during the second quarter compared to 15 percentage points in the first quarter.

Ramp costs, which include costs associated with operating a new factory below its target utilization and performance levels, were $29 million during the second quarter compared to $19 million in the first quarter. Ramp costs reduced gross margin by 4 percentage points in each of the first and second quarters. Our year-to-date ramp costs are fully attributable to our new Series 7 factory in Ohio, which is expected to reach its initial target operating capacity later this year. We also began to expect incurring ramp costs on our new Series 7 factory in India in the third quarter. SG&A and R&D expenses totaled $83 million in the second quarter, an increase of $8 million compared to the first. This increase was primarily driven by additional investments in our R&D workforce, our R&D testing costs, additional share-based compensation expense and higher professional fees.

Production start-up expense, which is included in operating expenses, was $23 million in the second quarter, an increase of approximately $4 million compared to first quarter. This increase is attributable to higher pre-production costs at our new factory in India, which will be prepared to starting production this quarter. Our second quarter operating results included approximately $8 million of non-module revenue associated with project earn-out payments from our former systems business. We also recorded a litigation loss of $36 million associated with the dispute with the Southern Power Company related to legacy EPC [indiscernible] projects in the United States for which we served as the EPC contractor. We are evaluating our options in relation to this litigation.

Year-to-date operating loss impact from legacy systems business related activities was approximately $22 million. Our second quarter operating income was $169 million, which included depreciation, amortization and accretion of $72 million, ramp costs of $29 million, production start-up expense of $23 million, legacy systems business-related impact of $28 million and share-based compensation expense of $8 million. We recorded tax expense of $18 million in the second quarter compared to a tax benefit of $7 million in the first quarter. The increase in tax expense was driven by higher pre-tax income and lower tax benefits associated with share-based compensation awards with the majority of these awards vest during the first quarter of each year.

The aforementioned items combined led to a second quarter diluted earnings per share of $1.59 compared to $0.40 in the first quarter. And note, growth-related start-up and ramp costs have impacted Q1 and Q2 by $38 million and $53 million, respectively, for a cumulative first half 2023 operating income impact of $91 million. Next on to Slide 9 to discuss select balance sheet items and summary cash flow information. Our cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities ended the quarter at $1.9 billion compared to $2.3 billion at the end of the prior quarter. This decrease was primarily driven by capital expenditures associated with our new facilities in Ohio, Alabama and India, and payment for our acquisition of Evolar, partially offset by advanced payments received for future module sales and additional drawdown by India credit facility.

As it relates to advanced payments, for substantially all contracts in our backlog at the time of booking, we typically require payment security in form of cash deposits, bank guarantees, surety bonds, letters of credit, commercial letters of credit, parent guarantees, targeting up to 20% of the contract value. Cash deposits, which are reflected on our consolidated balance sheet as deferred revenue, totaled approximately $1.5 billion at the end of the quarter and provide a meaningful portion of the financial resources required to fund our existing expansion method. Total debt at the end of the second quarter was $437 million, an increase of $117 million from the first quarter as a result of the loan drawdown under our credit facility for our factory in India.

Our net cash position decreased by approximately $0.5 billion to $1.5 billion as a result of the aforementioned factors. Cash flows used in operations were $89 million in the second quarter, primarily due to expansion-related activities. Capital expenditures were $383 million during the period. During the quarter, we secured a five-year revolving credit facility for $1 billion. We’re focused on exiting this decade in a stronger position than we entered it, and liquidity is a crucial differentiation we intend to maintain. This facility provides us with the financial headroom and flexibility we need, while also balancing our ability to grow in response to demand for our technology. Turning on Slide 10, I’ll discuss full year 2023 guidance. As noted on our February guidance call, given the declining impact of our other segments, we stated that we are no longer providing segment-specific guidance, but would note any significant impact to our consolidated financials.

As it relates to our legacy systems business, year-to-date, we have seen approximately $20 million of revenue, $14 million of gross profit, $36 million of litigation losses within operating expenses. As it relates to our module business, we expect to see approximately $40 million improvement in gross profit relative to our prior guidance. Given their size, these combined numbers do not impact our forecasted revenue and gross margin guidance ranges, which remain unchanged. Note, our full year Section 45X tax benefits forecast of $660 million to $710 million is also unchanged. Our operating expenses guidance has increased to $450 million to $475 million to reflect the aforementioned litigation losses. Operating income and earnings per share guidance remain unchanged.

I’d like to highlight that in terms of earnings cadence over the second half of the year, we anticipate that volumes sold, revenue, IRA Section 45X benefits will be distributed approximately 40% in the third quarter and 60% in the fourth quarter. With operating expenses approximately evenly split between Q3 and Q4, this implies an expected second half 2023 EPS split of approximately one-third in Q3, two-thirds in Q4. Incremental capital expenditures of approximately $100 million in 2023 associated with our newly announced U.S. factory are offset by a pushout from the timing of approximately $300 million of CapEx associated with equipment upgrades previous assumed in 2023 into early 2024. Our full year 2023 capital expenditures forecast is therefore reduced to $1.7 billion to $1.9 billion.

This reduction in forecasted capital expenditures, combined with an expected increase in deposits associated with future bookings, results in an expected $0.3 billion increase of our forecasted year-end net cash balance, which is now $1.5 billion to $1.8 billion. As it relates to our longer-term outlook beyond ’23, we plan to hold an Analyst Day at our Ohio campus on September 7 this year, which [we’ll do through] (ph) a live webcast. Turning to Slide 11, I’ll summarize the key messages from today’s call. Demand continued to be robust with 21.1 gigawatts of net bookings year-to-date, including 8.9 gigawatts of net bookings since our last earnings call, leading to a record contracted backlog of 77.8 gigawatts. Our continued focus on manufacturing technology excellence resulted in a record quarterly production of 2.8 gigawatts.

Our India, Ohio and Alabama expansions remain on schedule, and we expect to invest an additional $1.1 billion in a new U.S. factory office in the country, which is expected to begin production in the first half of 2026. Cumulatively, in the year since the announcement of the IRA, we committed $2.8 billion of capital spending across manufacturing and R&D in the United States, which we expect will result in the creation of 1,700 direct new jobs and multiples of this number in new indirect jobs. From a technology perspective, we completed a limited production of one of our first bifacial solar panel, utilizing our advanced thin film semiconductor, and acquired Evolar, the European leader in thin film perovskites and CIGS technology. These investments are expected to accelerate our development of next-generation PV technology, including high-efficiency tandem devices.

Financially, we earned $1.59 per diluted share, inclusive of a legacy systems business-related litigation loss, and we ended the quarter with a gross cash balance of $1.9 billion or $1.5 billion net of debt, with additional debt capacity of $1 billion under our new revolving credit facility. We are maintaining our revenue and EPS guidance, including forecasted full year earnings per diluted share of $7 to $8. With that, we conclude our prepared remarks and open the call for questions. Operator?

Q&A Session

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

Philip Shen: Hi, everyone. Thanks for taking my questions. Two categories. First one on bookings. Looks like your ASP was strong and healthy for bookings ASP at about $0.327. And then you have, Mark, I think you mentioned the addition of another $0.02 of adders. I wanted to ask you, what do you expect your bookings to look like ahead? You had a little bit of a quiet period during Q2, but then you ramped it up subsequent to July 1. Do you think that accelerates now that you have new capacity announced? And then, the second category of questions here is, we thought you were sold out for 2024. But in that agreement that you announced today, you highlighted — and I think in some of the other agreements over the past few weeks that you have more — that you booked for ’24.

How are you guys able to do that? Did someone — did a party cancel their order? Or are you running above 100% utilization? Is there any more volume left to be sold in ’24? And how much is left for ’25? So, thanks, guys.

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.

Philip Shen: Great. Thanks, Mark. Actually, just want to — since I’m on the line, I just want to clarify, your $0.296 is the ASP for the whole backlog, whereas the $0.327 I was talking about, I think that’s the ASP for the incremental bookings since the first quarter. Is that correct? Just to clarify.

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.

Philip Shen: Okay. Got it. Thanks. I’ll pass it on.

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

Brian Lee: Hey, guys. Good afternoon. Thanks for taking the questions and congrats on the new factory announcement. I had two questions here. I guess, first off, on the domestic content rules since they’ve been out from mid-May, what have you been articulating? I guess maybe the customer feedback has been around the 40% and 55% threshold. Is that basically going to be achieved by just buying Series 7 panels from Alabama and the new site? And then would you be expecting more pricing potential? It sounded like you did on volumes from those sites going forward. If you could maybe help quantify. And then the second question was just on that new factory, any puts and takes on first half 2026? Maybe it’s a little bit of a nitpicking item, but would there be ability to move that up given — I think, historically, you’ve talked about like a two-year build cycle. So, is there room to have this even online a bit earlier into the end of ’25? Thanks, guys.

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.

Operator: All right. Thank you. And our next question comes from the line of Joseph Osha. Joseph, please go ahead.

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.

Mark Widmar: Look, I would say on the perovskites side of the house in particular, I’m very happy with capabilities that Evolar brings to the table there. I think it’s very complementary to capabilities that our own internal team has. And — on continuum, maybe slightly different approaches, but both showing — demonstrating very good results. And again, there’s a combination of challenges, but one, first and foremost, that everyone is working through is stability of the device. Efficiency is obviously important, but you also need something that’s stable. And perovskites, in general, have — historically had issues and challenges with trying to demonstrate long-term durable stable devices. So, having there on CIGS6, Evolar has got some very deep capabilities there and record sales that they’ve demonstrated, it’s like north of 23%.

And we think that there’s a potential for a tandem technology, thin film-thin film that can get to market sooner than maybe perovskites can at this point in time. And there would be a CadTel top cell, with CIGS bottom cell. And if we were able to do something like that, then that would clearly give you a higher-efficiency product that could expand our addressable market. And that’s largely why we’re investing in the technology the way we are. I mean, we are a module manufacturing technology company. We want to be a technology leader. We are a world-class leader as it comes to thin film devices. Both of these are thin film semiconductors, and we’ll continue to evolve the capabilities there. As it relates to when we can get to market, that’s — it’s probably too early to determine.

There’s a lot that needs to be done yet to address a number of hurdles and issues that have to be resolved. But I’m encouraged with at least the platform that we have, very complementary to our world-class leadership that we’ve taken in CadTel. These are two alternatives thin films that can be very complementary and I think can further our technology leadership over time.

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?

Mark Widmar: I think I’d mark it to that two-year cycle. I think that’s probably the right timeline. I mean there’s other issues that we’re running into. It also varies where we’re going to go. If we go to India, I would argue potentially, India could a little bit faster. U.S. is running to a number of challenges, especially around construction and timelines to do that, availability of workers, access to energization of the factory. We’re still looking at Europe, and it depends on the path we go in Europe. That could also maybe be slightly shorter timeline than where the U.S. is right now. But I think the best way to look at it is kind of a two-year timeframe.

Joseph Osha: Understood. Thank you.

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

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.

Mark Widmar: As it relates to — most of those — just as a reminder, most of the conversions that we put in place that relates to ’23, ’24 and ’25, that’s really what the years it sits in, those were all somewhat thought through and envisioned as a potential opportunity through the contracts that we were structuring at that point in time in which we implied domestic content. And to the extent, certain rules would come through, then there would be — and to the extent we provided them with the domestically manufactured product that we would be entitled to incremental ASP. In other cases, we’ve left them open, and it was really up to the customer. And if you want domestic supply, then fine, we’ll provide it. We have the option to provide it internationally as well.

If you want domestic, then we’ll negotiate an incremental ASP from that standpoint. So as it relates to any callbacks or provisions in those adjustments of modification amendments that we did, really there’s nothing embedded in those agreements that would result in that. Now, I will say on new volumes that we’re booking now, there are provisions in there that would require an adjustment to the extent we do not meet the representations that we gave to the customer, right? So for example, I said that our Series 7 product would be domestically manufactured product, and therefore, the list of 10 or how many components there are would all be manufactured in the U.S., and therefore, the product would be domestically manufactured. And we’ve given ourselves some buffer relative to that.

And to the extent we don’t manufacture the product as currently envisioned to ensure that all those components are domestically manufactured, yes, then there would be a potential impact for that lack of performing effectively, right? But that’s all within our own control. And if the project qualifies or doesn’t qualify, we’re held harmless. As long as we meet our requirements, whether the project level hits its 40% or 55% or whatever it may be, there’s no recovery or clawback from First Solar. The only thing we have, which you would expect under any contract, we have an obligation to comply. And we made a representation around it being a domestically manufactured product. And therefore, those components which have been identified have to manufacture in the U.S. And really, I see that as not a lot of risk because that’s what we’re doing already, all that’s being sourced here in the U.S.

Alex Vrabel: Got it.

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

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?

Alex Bradley: Yes. So it’s a little bit of both. You’re definitely seeing a drop in sales rate. We did forecast a drop throughout the year, perhaps dropped a little bit earlier in Q2 than we had expected. So I’d say more than half of what we have added in terms of module gross profit to the guide is associated with better sales rate. But there is a little bit of improvement in the core relative to our previous guide as well. Importantly, just to make sure it’s clear, we said that we’re not changing our forecasted Section 45X benefit. So it’s not an increase in the cost of goods — on the gross profit line associated with a reduction in cost of goods from IRA benefits. It’s all fitting across core cost of production and sales rate.

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?

Mark Widmar: Yes. So, we currently are not envisioning sourcing anything from the U.S. to Europe. Now could there be a particular deal that we’ve contracted that would — because of a particular [win] (ph) that we needed for that project or a particular product that we needed, could it come from the U.S.? Potentially, but that’s not the intent. The intent would be to support Europe out of our international factories in Malaysia and Vietnam. Obviously, Malaysia and Vietnam are also our two lowest-cost factories before India gets up and running. When India is up running, then it will become our lowest-cost factory in the fleet. But right now, they’re our two lowest-cost factories. And yes, we are — we have global customers, right, very large utilities or oil and gas majors that one global supply.

They have projects in the U.S., and they have projects in India. They may have projects in Europe, and they want to have product and they enter into agreement with First Solar, so we could source not just a particular region but multiple regions, no different than the Energix deal that we announced. I mean that was volume for the U.S. It included volume in Israel. It included volume in Poland, at least potentially identified, which is where they’re developing. We will have — we do have to differentiate pricing in some regards to be competitive in those opportunities relative to where other global pricing has gone. But we still will get a premium. We’re not in a position where we’re having to price liquidation type of fire-sale ASPs like others are doing right now, because there’s a long-term relationship that we have with strategic partners.

And I think using Energex, as an example, to the best of my knowledge, they are 100% sourced to First Solar regardless of where their projects are. But I have to make sure that they can be competitive in the market at which they compete in. And I can’t establish a market price that’s meaningfully out of market, so we price accordingly.

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.