First Solar, Inc.

Good afternoon, everyone, and welcome to First Solar's first quarter 2021 earnings call. This call is being webcast live on the investor section of First Solar. At this time, our 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.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its first quarter 2021 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 Widmark, Chief Executive Officer, and Alice Bradley, Chief Financial Officer. Mark will begin by providing a business and technology update. Alex will then discuss our financial results for the quarter and provide updated guidance for 2021. Following the remarks, we open the call for questions. Please note this call will include forward-looking statements that involve risks and uncertainties that could cause after-results to differ materially from management's current expectations, including, among other risks and uncertainties, the severity and duration of the effects of the COVID-19 pandemic. We encourage you to review the State Harbor Statements 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.

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 are 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 the 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 U.S. project development and North American O&M business sales. Overall, I am pleased with our strong start to the year, which has positioned us to deliver our annual earnings per share guidance. Turning to slide three, 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 bill of materials shortage in Malaysia, along with planned downtime for throughput and technology upgrades, which combined adversely impact cost per 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 at both our factories in Malaysia, and our fleet-wide average watts per module improved to 442 and 445 watts. This manufacturing performance has been a key driver of our cost-per-watt reduction. and gives us further confidence as we execute on our cost reduction roadmap. It is also important to put our recent performance into context. Comparing to April of 2019 to April of 2021, month to date, our average watts 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 am 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 our re-rated capacity utilization baseline, and increasing manufacturing yield to a mid-term target of 98.5%, we have an opportunity to significantly reduce costs through discipline manufacturing. As a company, we have demonstrated discipline, execution, and agility throughout the startup and ramp of our Series 6 factory, including gathering new learnings 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's time. The consistent improvement of our factory implementation 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 over 10 gigawatts of main plate 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 are each catalyst as we evaluate the potential for future capacity expansions. While we have made no such decision at this time, we are targeting to make a determination by our Q2 earnings call. From a shipping and logistics perspective, we have experienced bi-coastal 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 revenue recognition. While the cost per watt of PV modules has declined significantly in the past decade, sales trade has largely remained fixed on an absolute dollar basis. As a result, sales trade has become a more meaningful percentage of the cost per watt. For example, in Q4 last year and Q1 of this year, sales rate and warranty reduced our module segment gross margin by 7% and 8% respectively. Note, this highlights for markets with large recurring demand, such as the U.S., India, and Europe, the importance of having in-country or in-region manufacturing, which can significantly reduce the cost of sales rates. 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 the following initiatives. Firstly, as we improve module efficiency, we benefit from an increase in watts per shipping container and a corresponding decline in sales rate per watt. Secondly, as we implement Series 6+, we will reduce the profile of our frame and junction box by approximately 10%, enabling an increase in the number of modules per shipping container. 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 by reducing shipment timing risks 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 per watt reduction objective. From a supply chain perspective, our strategy emphasizes long-term agreements 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 we'll be able to meet our expected profitability. Our approach to tellurium is similar. We secure our supply needs through multi-year fixed price agreements. while striving to reduce cattail usage per module through optimization of our vapor deposition process. While tellurium is a key component of our semiconductor material, it is a minor component of our cost per watt given our cattail thin film is 3% the thickness of a human hair. Also, as part of our global high-value PV recycling program, we were 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 the expected useful life of our modules, this has the potential to significantly reduce our ongoing fluorine and cadmium needs in the future once power plants using first solar modules reach the end of their useful life. which is used in the construction of our frame, has recently experienced a price increase to above pre-pandemic levels. While the head structure we put in place has partially mitigated this impact, we anticipate some cost challenges related to aluminum during the year. However, as part of our Series 6 Plus implementation, we anticipate reducing our frame's 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 the result of our continued manufacturing execution and aforementioned risk-reduced supply chain approach, we achieved our module segment gross margin target in Q1. Additionally, while costs are certainly remaining for certain bill of materials, we are tracking to achieve our targeted 11 percent 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 shipping market, our revised target cost per watt sold reduction is six to seven percent. Turning to slide four, in Q1, we completed the sale of our contracted Sunstreams 2 and uncontracted Sunstreams 4 and 5 projects to Long Road Energy. In April, we completed our uncontracted Sunstreams 3 project to Long Road as well. Across these four projects, Long Road intends to utilize approximately a 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 siting, permitting, interconnection, and securing long-term feed-and-tear contracts has positioned us well in the market. Today, we have an approximately 320 megawatt systems backlog in Japan, which includes 55 megawatts of new booking since the February earnings call. This backlog is a reflection of our recent success, averaging approximately 100 megawatts per year of systems booking in Japan between 2018 and 2020. Looking forward in the near term, we have an opportunity to add to this backlog with approximately 40 megawatts of Japan systems opportunities with feed-in tariff rights secured as they are pending satisfaction of certain permitting requirements. Across the total portfolio, we have the potential to capture approximately $250 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 assistance projects in Japan will contribute meaningfully to our midterm operating income. With a 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 pipeline 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 positioning the United States to out-compete China. Additionally, the plan is intended to revitalize domestic manufacturing, secure the U.S. supply chain, invest in R&D, and train Americans for the jobs of 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 crisp and silicon technology among the 10 largest solar module manufacturers globally, with a premier vertically integrated manufacturing process and a differentiated catch-all technology, we are 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 manufacturer in the United States and directly employ 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 at a domestic supply chain of their own. NSG soda ash, which is the primary material used in glass manufacturing, is procured from a 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 our R&D lab facilities in Silicon Valley and Ohio. As a reflection of this commitment since our IPO, we have chemically invested over $1.4 billion in research and development. As the only thin-film module manufacturer of scale, with a 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 Cattail 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 various degrees on third-party sourcing and the 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 a 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 vertically integrated manufacturing process and differentiated Cattell 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 an industrial policy that identifies clean tech manufacturing as a national security strategic priority to advance U.S. energy independence. We believe that this type of policy would be promoted through incentives by for domestic manufacturing, continued investment in advanced technologies, closing buy American loops, and tariff reform. Turning to slide five, 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 crisp and silicon supply chain, they are unable to ensure that the solar modules in their systems from which they buy power were not manufacturing used alleged forced labor. While our Series 6 energy quality and environmental advantages are all key differentiators, customers increasingly are ascribing value to our vertically integrated manufacturing process, supply chain transparency, and zero tolerance for the use of forced labor in our module 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 are 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 1.8 gigawatts during the first quarter, Our future expected shipments, which extend into 2024, are 14.8 gigawatts. Included in our 1.8 gigawatts of Q1 shipments are approximately 0.2 gigawatts of Series 4 that was 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, a 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 are largely sold out for 2021, have 6.4 gigawatts for potential deliveries in 2022, and 3 gigawatts across 2023 and 2024. Overall, the market remains competitive. We are pleased with the pricing levels that we are 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 percent lower than the volume to be shipped in 2021. Slide six. provides an updated view of our global potential bookings opportunities, which now total 16.5 gigawatts across early to late-stage opportunities through 2024. In terms of geographical breakdown, North America remains the region with the 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 feel could book within the next 12 months. This 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 a decrease from our prior earnings call, which is largely due to our recent bookings momentum. Finally note, included in the 7.8 gigawatts is a one gigawatt order for a US customer that just hours ago we booked. Including this booking in our contracted future shipment, it is just shy of 16 gigawatts. I will now provide an update on our technology roadmap. As previously disclosed, we launched our Series 6 Plus program, leveraging our existing Series 6 toolset, which increased our module form factor by approximately 2% and our top production bin by approximately 10 watts. We first 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 by the fourth quarter of this year. As previously announced, our Series 6 CURE modules offer an industry-leading 30-year 0.2% annual warranty degradation rate, which is up to 60% lower than conventional crisp and silicon product. Additionally, we anticipate improving module efficiency, enabling a top production bin of 460 to 465 watt by the end of 2021. We anticipate this lower degradation rate, combined with improved temperature coefficient and superior spectral response, will build upon our existing energy advantages, especially in hot and humid climates. As previously indicated, CURE significantly increases Series VI competitiveness against bifacial modules. As a result of the aforementioned advantages, as compared to a leading crystal 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 in our 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 cattail vapor deposition process. This enhances the long-term stability of our CURE modules, and based on initial performance in the field and an accelerated life test, demonstrates a near zero annual degradation rate. Given PV power plants have useful lives 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 that enhance our competitive position in the market. Finally, we are continuing to evaluate the potential to leverage the high bandgap advantages of Cattell in a tandem or multi-junction device. A tandem device has the potential to be a disruptive, high-efficiency, low-cost with an advantage energy generation profile leveraging many of the innovations in our Cattail technology roadmap. Additionally, we believe a thin film semiconductor will be the key demonstrator 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.