First Solar, Inc.

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

Good afternoon and thank you for joining us. Today, the company issued a press release announcing its second quarter 2022 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 begin by providing a business and technology update Alex will then discuss our financial results for the quarter, provide a guidance update, and also provide some insight into our pricing strategy and our vision for gross margin expansion. Mark will then provide perspective on the domestic and international policy environment. 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 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, Richard. Good afternoon, and thank you for joining us today. To begin, we are pleased with our second quarter results, including earnings per share of 52 cents. This result was benefited by the previously announced closing of the sale of our project development platform in Japan partially offset by an impairment of the legacy system business project in Chile, which will be discussed later during the call. We've also continued our booking momentum, further strengthening our backlog of future expected deliveries, which now stands at a record 44.3 gigawatts. The 10.4 gigawatts of new bookings since our prior earnings call in April are mostly for deliveries in 2024 to 2026 timeframes. and have a base ASP excluding adjusters of 30.1 cents. These new deals bring our total year-to-date bookings to 27.1 gigawatts. From an ASP perspective, we are encouraged by the pricing trajectory of our bookings as we continue to transact for deliveries as far out as 2026. On an overall portfolio basis, the profile of our annual base contracted ASPs remain effectively flat from 2022 through 2025, with the potential to grow with the application of technology, sales rate, and commodity price adjusters applicable to many of these bookings. Firstly, as it relates to technology adjusters, if we are able to realize the achievements within our technology roadmap, the ASP is potentially increased to reflect the value associated with the enhanced product and energy profile. As of June 30th, we had approximately 20.5 gigawatts of contracted volume with these adjusters, which, if realized, could result in additional revenue of up to approximately $0.4 billion, or approximately two cents per watt, the majority of which would be recognized in 2024 and 2025. As previously discussed, this amount does not include potential adjustments for the ultimate module bin delivery to the customer, which may adjust the ASP under the sales contract upward or downwards, or for those contracts in the United States that include sharing related to potential upside for U.S.-made modules under the extension of the investment tax credit. Secondly, the ASP may increase to offset incremental costs as it relates to sales rate. Thirdly, the ASP is also potentially increased to offset incremental costs as it relates to aluminum. With regards to our Series 7 product to be produced at our new factories in Ohio and India, featuring a glass area approximately 14% larger than our Series 6-plus modules, and utilizing the steel as opposed to aluminum frame, we have also begun to introduce adjusters to offset potential increased steel costs. As a reminder, not every recent contract includes every adjuster described here. To the extent that such adjusters are not included in the recent booked contract, we believe the baseline ASP reflects an appropriate risk-reward profile. For example, some of these contracts have delivery terms where the customer is responsible for the cost of sales rate from the factory gate. In summary, we continue to leverage our value proposition of providing our customer partners with long-term supply certainty, lower political and compliance risk, and access to our best available technology. These critical points of differentiation, together with our differentiated CAD-TEL technology, have allowed us to continue to expand our record backlog and an overall pricing that we believe is both encouraging and competitive and with appropriate risk mitigation. Turning to slide three, I'd like to review our highlights and some updates from our second quarter. Our manufacturing facilities produced 2.2 gigawatts of modules in Q2. The results was benefited by higher throughput due to faster than expected upgrades of certain equipment at our Vietnam manufacturing facilities. As previously disclosed, We have completed the sale of our project development platform in Japan. As we seek to divest our remaining power plant assets, we are evaluating potential buyers for our Luz de Norte project in Chile. Alex will discuss the timing and financial impact of this potential transaction. Construction of our third manufacturing facility in Ohio and our first manufacturing facility in India remains on schedule. To date, we have seen increases associated with steel and freight costs Looking forward, as we continue to explore further manufacturing expansion opportunities, inflationary pressures on building equipment and freight costs are expected to remain a concern. Finally, we've entered into a $500 million debt facility for our new manufacturing facility in India, with the first disbursements expected in the third quarter. Before turning to shipments, I would like to say a word about the current sales freight environment. While there are reports that suggest supply chains are beginning to trend towards normalization on a macro basis, global sales freight conditions remain challenging. Although spot rates for ocean freight have fallen quarter over quarter, these benefits were partially offset by increased fuel costs. In addition, we are approaching the peak period in terms of delivery of goods ahead of the year-end holiday season, which represents a potential headwind that may render the recent easing in the shipping rates a temporary phenomenon. From a logistics perspective, we are still experiencing the impact of port congestion. In the United States, after a brief reprieve, we have seen a continuous buildup of congestion on the East Coast, as some shippers divert away from the West Coast port to avoid the potential impacts of ongoing labor negotiations. For example, the queue of ships looking to berth at the Port of Savannah has recently increased to 30 vessels, up from zero in the previous quarter. While transit times from Asia to the United States have improved, they remain well above the pre-pandemic averages. In fact, combined with challenges such as poor congestion and blank sailings has led to an estimated 12% reduction in global shipping capacity. Notwithstanding these challenges, we continue to execute on our strategy of employing freight risk-sharing mechanisms in our customer contracts, with nearly all of our recent bookings either featuring contractual adjusters designed to offset incremental sales freight costs or allocating all ocean freight responsibility to the customer, in either case mitigating gross margin erosion. As of today, we have 32.7 gigawatts of contracts in our backlog with either sales freight coverage or no sales freight exposure. As you may expect, contracts where customers take on responsibility for the transport have lower ASP than those where we are responsible for shipping. By way of example, one such contract, which is included in the revenue from contracts from customers' footnote in the Quarters 10Q, is a 2.3 gigawatt sale to a highly valued long-term partner. This volume, targeted for low-bin inventory, is contracted to supply from our international factories with the customer being responsible for transportation, which is currently estimated to be 4 to 5 cents per watt. Therefore, the ASP for this transaction is lower than the average of the ASP for other sales contract entered into in the period. Note, 4.9 gigawatts of the 11.9 gigawatts increase in contract from customers for future sales included in the revenue from contract from customer's footnote in this quarter's 10Q requires that customers take on responsibility for shipping. Had First Solar had this shipping responsibility, we estimate that the implied ASP of this 11.9 gigawatts volume increase would have risen by approximately two cents per watt. Of note, we expect the majority of our India factory output to be contracted on an ex-works basis, with the customer picking up modules at the factory gates and assuming all transportation costs. Accordingly, we believe headline ASPs in India will be lower than in other markets where we include an assumption of sales rate within the ASP. That said, Alex will address why we expect gross profit per watt for the India factory to be equal or higher than the fleet later in the call. Turning to slide four, we address our recent shipments. As just mentioned, we've booked 10.4 gigawatts since the April earnings call. With respect to future shipments, After accounting for shipments in the quarter of approximately 2.5 gigawatts, which is in line with our expectation, our total contracted-to-date backlog is 44.3 gigawatts. We are sold out for 2022 and 23 as of April's earnings call, and now sold out for 2024, excluding our new India manufacturing facility. We have 12 gigawatts for planned deliveries, excluding India, in 2025, and have 2.6 gigawatts of planned deliveries in 2026 and beyond. As it relates to our India factory, we have seen significant near and longer-term demand from domestic customers as we anticipate entering into first contracts for the output of this factory within the coming months. Under our bookings policy, signed contracts in India will not be recognized as bookings until we have received full security against the offtake. As such, deals signed but not fully secured will be reflected with a confirmed but not booked portion of our pipeline graph in the earnings presentation. The 10.4 gigawatts booked since April earnings call include an order for 2.4 gigawatts of modules at one of our largest standing customers, U.S. headquartered Intersect Powers, announced earlier today. These modules are scheduled for delivery in 2025 to 2026, further expanding the horizon for our backlog. This booking is reflective of a broader trend among longstanding U.S.-based customers to strengthen their commitment to First Solar's Cattail thin film technology as they seek long-term pricing security, supply certainty, and value for their project pipeline. We are seeing greater geographical diversity in our bookings than among customers negotiating long-term framework supply agreements. Notably, European developers are increasingly recognizing the risk of relying on supply chains that are concentrated in China. As just one example, the French developer Okuro, which has placed an order for 500 megawatts for its project portfolio in the U.S. and in Europe. Our bookings momentum demonstrates the growing recognition of the risk of pursuing a solar at any cost strategy. Developers that have built excessive dependencies on China's state-subsidized solar industry are grappling with an increasing volatile pricing and supply environment. A prime example of this increased risk profile is a recently reported lawsuit filed against the top tier Chinese solar manufacturer alleging breached delivery obligations, fraudulent actions, and breach agreements related to product traceability information. This direct contrast with the experience of our customers who have benefited from our emphasis on durable partnerships as enablement of long-term growth and our ability to stand behind our contracts and deliver on our commitments. Our customers have also benefited from an industry-leading approach to sustainability, transparency, and traceability. We believe that our focus on long-term partnerships and our focus on basing of an enduring strategic customer that seeks to partner with First Solar for large-scale, multi-year procurements have been key drivers of our success, and it enabled a solid foundation for growth. We also believe that these strategies set us up for enduring success, differentiating ourselves from the highly volatile transactional environment that some of our competitors may operate in, and providing longer-term stability and visibility, not just for our customers, but for our shareholders. As reflected on slide five, our pipeline of potential bookings remain robust. Even after year-to-date bookings of 27.1 gigawatts, we retain long-term total bookings opportunities of 50 2.5 gigawatts. Our 17.8 gigawatts of mid to late stage opportunities include 9.7 gigawatts in North America, 3.9 gigawatts in India, and 4.2 gigawatts in the EU. In India, we continue to see meaningful potential as it relates to demand from domestic developers, foreign-owned IPPs operating in the country, and the Indian government's efforts to boost demand certainty for domestic manufacturers. Similarly in Europe, we are seeing growing demand where geopolitics and the war of Ukraine have led to an urgent effort to deploy more renewables as the EU works to diversify its energy portfolio. Turning to technology, we are pleased with the progression of our current roadmap. As previously stated, our roadmap provides us with a high level of optionality, allowing us to pursue enhancements to our product design and energy profile. as well as a path to potentially offer a true next-generation solar module for the residential market. On the last earnings call, we had announced that our R&D teams are continuing to make progress on developing the bifacial attributes of our CAD cell semiconductor as we reaffirm the commercial, financial, and operational thesis of the bifacial product. As our bifacial program evolves from the research level to large pre-production runs, Our R&D team is working to achieve field validation, including operational and reliability data. This is necessary to ensure a viable path to large-scale commercial manufacturing. In parallel, we are working to stand up the supply chain necessary to help support the eventual introduction of a bifacial CAT-TEL module. While we expect manufacturing line modifications to be minor, a bifacial CAT-TEL module will have different material requirements necessitating adjustments to our supply chain. I'll now turn the call over to Alex, who will discuss Q2 results.