First Solar, Inc.

Good afternoon, everyone, and welcome to First Solar's first quarter 2022 earnings poll. This poll 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 poll is being recorded. I would now like to turn it over to Mitch Ennis from First Solar Investor Relations. Mitch, you may begin.

Thank you. Good afternoon, everyone, and thanks for joining us. Today, the company issued a press release announcing its first quarter 2022 financial results. The 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 Alex Bradley, Chief Financial Officer. Mark will begin by providing a business and technology update. Alex will then discuss our financial results for the quarter. 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 actual 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 Safe Harbor statements contained in today's press release and presentation for 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. To begin, while our 41 cent 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 earnings standpoint due to the factors that we highlighted during our call in March and which we will address further today. That said, we are encouraged by our strong bookings progress as we booked 11.9 gigawatts in less than 60 days since the prior earnings call bringing our year-to-date bookings total to 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 booking. 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 risk, and access to our best available technology is a tremendous value driver for sophisticated customers who may be fatigued with the 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 a relationship that spans hundreds of megawatts of previously installed capacity. In addition, our most recent bookings include significant volumes 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 cattail 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 were entered into in price several years ago. We take a different view. We are continuing to build for solar for the long term, and our partnerships with our highly valued customers is a 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, multi-year 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 Flight 3, I'd like to review some highlights and provide some updates from the quarter. As just mentioned, we booked 11.9 gigawatts since the March earnings call. After accounting for shipments of approximately 1.7 gigawatts, which was in line with our expectation, this brings our total contracted backlog to 36.4 gigawatts. Manufacturing and robotics 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 and India. Moreover, the conflict and current inflationary environment have contributed to dislocations in certain currency markets. Alex will discuss the impact of First Solar later in the call. Regarding freight, while pricing in the trans-oceanic freight market continues to be at historic highs, and to represent a headwind in 2022, we have recently seen increased container availability, which we believe is a result of China's pursuit of its zero COVID policy with its associated lockdowns. That said, transportation costs and transportation duration continue to be significantly higher than historic known. 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, as 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 risks 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 in the fleet, their proximity to demand, and given our large fixed operating cost structure, growth is expected to provide significant incremental contribution margin. As we consider options for growth, we have increasingly been approached to consider further expansions with various financing, ownership, and offtake 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 are 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 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 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 sizes and risks, such as cell cracking, Cattail has no such form factor or size limitation. The larger form factor benefits are cost per watt produced and allows our customers to install more watts with less balance of system costs. In terms of design, we expect the mounting system to be regionally optimized in the U.S. to attract our application and in India to a fixed tilt application. We believe the redesigned structure will combine lower costs to produce with greater installed speed in the field, benefiting both for solar and our customers. As it relates to energy, in addition to benefits associated with irrigation, temperature coefficient, spectral response, and shading, our R&D team continues to make progress on developing the bifacial attributes of our Cattail semiconductor. We are continuing to run tests that we expect will enable us to commercialize this technology across our module platforms and have recently produced another set of pre-production prototypes for additional field and product testing as we work to reaffirm the commercial, financial, and operational thesis of Bifacial Cat's Health. Looking at the residential market, we recognize the value of high efficiency, aesthetically pleasing, and domestically manufactured products. To that end, we continue to evaluate the prospect of leveraging the high bandgap advantage of CAD-TEL 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 CAD-TEL 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 CNI 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 stacked-handed module platform that combines our advanced thin-film CAD cell semiconductor with responsibly sourced crystalline 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 a focus on the three current technology pathways that we believe can be commercialized in the near term, Series 7, bifacial CAT-TEL, 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 amendments and advanced stage negotiations to amend certain customer contracts utilizing CUR 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 four. With the aforementioned 11.9 gigawatts of bookings since 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. Our future expected shipments, which extend into 2026, are 36.4 gigawatts. Including our year-to-date bookings, we are sold out for 2022 and 2023, have 9.6 gigawatts for planned deliveries in 2024, and have 7.6 gigawatts for planned deliveries in 2025 and beyond. Including these bookings are gigawatt-sized deals entered into over the past several weeks with, among others, Silicon Ranch, Energex Renewable Energies, and Leeward Renewable Energy for delivery in North America and internationally. Turning to slide five, 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 contract 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 BIN class delivered. reflective of the baseline then 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 upsides for technology improvements as shown by the green circles. As shown by the dotted box on the slide, and as we have reflected in the 10Q filing, as of March 31, 2022, we had approximately 9.8 gigawatts of contracted volume with these adjusters, which is, if realized, could result in additional revenue up to $0.3 billion, or approximately $0.03 a watt. Note, of our 4.8 gigawatts of calendar quarter bookings, 1.4 gigawatts did not include technology adjusters, but was priced with an approximate 10% premium to the remainder of the calendar quarter bookings. As it 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 watt to produce, could have resulted in reduced gross margin. Under our updated structure, we have received and 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 freight and aluminum, we were previously exposed to incremental costs in logistics and commodity markets. Under our updated structure, we have contractual adjusters designed to offset such incremental costs and prevent gross margin erosion. As of today, we have 23.2 gigawatts of contracts with either sales freight coverage or no sales freight exposure. The aluminum coverage clause was introduced after Q1 quarter end and is present in 11 gigawatts of our most recent bookings. Indicatively, assuming today's sales freight and aluminum environment, A contract with these sales freight and aluminum gestures would increase 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 six, our pipeline of potential bookings remain 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-state 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 seven, 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 Weir Forced Labor Prevention Act, which received widespread bipartisan support in Congress. This act's rebuttable presumption against the importation of goods produced in the Xinjiang region, assumed to be produced with forced labor, is set to go into effect in June this year. There exist practical solutions to reduce the risk 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 well-being of workers and communities in the global supply chain, offers a leading standard for on-site compliance verification and effective, shareable audits in the form of a validated assessment program. Yet, this established model has not been widely adopted by the solar industry, with 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-Harris administration has 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 to the petition by Oxen Solar, the U.S. Department of Commerce has initiated anti-circumvention 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 under siege from the Chinese headquarter and 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 models 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 models produced in these four Southeast Asian countries. There is still very limited polysilicon ingot or 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 inputs, such as aluminum, silver paste, EVA 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 lobbyists advocating for China to have free reign in the U.S. markets. 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 lobbyists characterize Oxen 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 infirmary. 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's policy of silicon is heavily reliant on coal-produced electricity. When the price of coal goes up, so does the price of polysilicon and crystalline silicon solar panels. Whether produced in Xinjiang or in the United States, emissions exasperate the global climate crisis. Smokes facts not visible from Pennsylvania Avenue are no less harmful to the environment. To be clear, the uncircumvention investigation is not about prohibiting imports, but about ensuring the imports compete fairly in the U.S. market. We welcome the robust international competition in its 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. If 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 needs 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 innovations. At no point should this vital transition to a sustainable energy future come at the cost of American jobs, investment, innovation, or 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 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 invasion of Ukraine earlier this year. With regards to renewable deployment, faced 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 dependency on Russian gas by deploying more renewables 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 time frame. 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 supplies virtually all 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 strengthening 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 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 cell 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-tariff 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-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.