First Solar, Inc.

Good afternoon, everyone, and welcome to First Solar's third quarter 2022 earnings call. This call is being webcast live on the investor's 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.

Good afternoon, and thank you for joining us. Today, the company issued a press release announcing its third 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 provide a business and policy update. Alex will discuss our financial results for the quarter 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 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. Earlier this afternoon, we announced net sales of $629 million and a net loss for diluted share of $0.46 for the third quarter of 2022. As noted in our original guidance for the year, 2022 was projected to be challenging from an earnings standpoint, but we continue to maintain an unwavering focus on the future, setting the stage for long-term growth and profitability. Beginning on slide three, Our strong bookings momentum has continued into the second half of the year, with 16.6 gigawatts of new bookings since our last earnings call, which have a base ASP of 31.6 cents per watt before the application of potential adjusters, and total year-to-date bookings of 43.7 gigawatts. Our total backlog of future deliveries now stands at a record 58.1 gigawatts and includes orders for delivery as far into the future as 2027. The continued long-term demand for our products and the fact that our technology is expected to serve as a backbone for many of our customers' long-term growth plans is a testament to First Solar's strong fundamentals, grounded in our commitment to the principles of responsible solar, our differentiated technology platform, our balanced approach to growth, liquidity, and profitability, and our ability to provide a U.S. technology and manufactured product. In the third quarter, our manufacturing facilities produced 2.4 gigawatts of modules, and we shipped 2.8 gigawatts. Although showing signs of a recent easing, the overall shipping and logistics environment remains challenging. Alex will later discuss the impact of this on our Q3 results and full year guidance. Manufacturing performance metrics remain consistent across our existing fleet, and construction of our third manufacturing facility in Ohio and our first manufacturing facility in India remains on schedule. During the quarter, we announced 4.4 gigawatts of additional US manufacturing capacity, and today we announced an additional investment into a dedicated R&D research facility to be located here in the US near our existing manufacturing facility in Perrysburg, Ohio. Finally, as it relates to our legacy systems business, we have completed the previously disclosed sale of our operations and maintenance platform in Australia and Japan, and this week we signed a sale and purchase agreement for our Luz del Norte project in Chile. Turning to slide four, with regards to our manufacturing capacity, and as announced in August, we are investing approximately $1.2 billion in scaling our U.S. manufacturing footprint. Driven by robust demand for our module technology, as well as U.S. manufactured product, we expect this will expand our domestic nameplate capacity to approximately 10.7 gigawatts in 2026. Up to approximately $200 million will be spent to upgrade and expand our Ohio manufacturing footprint at both our current operating facilities as well as our third factory, which is currently under construction and scheduled to come online in the first half of 2023. As a result of this expansion, we believe our Ohio nameplate capacity will increase by almost a gigawatt to just over 7 gigawatts by 2025. Approximately $1 billion will be invested to build a new factory, our fourth in the United States, representing an additional 3.5 gigawatts of Series 7 nameplate capacity. This facility is expected to commence operation in 2025. We continue to evaluate several possible sites across the Southeast and expect to announce the location in the coming weeks. Beyond this, we continue to evaluate the opportunity for further investments in incremental manufacturing capacity, including throughput optimization of our current planned capacity. In addition, we are valuing capital investments to support the advancement of our R&D initiatives. In the United States, the enhancement the enactment, excuse me, of the Inflation Reduction Act, with both supply-side manufacturing and production tax incentives, as well as demand drivers, including the expansion of investment in production tax credits for solar and clean hydrogen, provides the long-term clarity necessary to support investments in manufacturing. In India, we continue to see a supportive policy environment, given decisive decisions by the government to diversify and grow domestic capabilities to avoid deeper dependencies on an unreliable, volatile, and high-risk supply chain. In Europe, we continue to work with stakeholders to advocate for long-term manufacturing and supply chain strategies that would enable us to support the energy needs of America's allies with local manufacturing, responsibly produced solar technology. We recently joined other leaders in the European Union to highlight the PV supply chain the need for decisive actions from the EU if it wishes to deliver on its goal to scale manufacturing across the block by 2025. While our immediate focus is on scaling our announced factories in the U.S. and India, we remain committed to exploring the long-term potential for further geographical diversification contingent upon a supportive local policy and demand environment. With regard to research and development, today's announcement of an approximately 270 million investment will support a 1.3 million square foot dedicated R&D innovation center in Perrysburg, Ohio, which pending final approval of various state, regional, and local incentives is expected to be completed in 2024. Currently, our R&D programs require transferring potential product advancements developed on specialized product development lines located in our California and Perrysburg laboratories to high-volume manufacturing conditions by running engineering test authorizations, or ETAs, on our existing commercial production lines in Ohio. Using these production lines increases operational complexity, as well as limits cycles of learning. In addition, the combination of a larger form factor module, increased module throughput, and recently enhanced production-based policy incentives has significantly increased the opportunity cost of the downtime required to run ETAs on existing high-volume manufacturing lines. This new facility will feature a pilot manufacturing line, allowing for the production of full-size prototypes of both thin film and tandem PV modules. Creating a sandbox separate from commercial manufacturing operations is expected to reduce operational complexity, reduce costs, allow us to accelerate our rate of learnings, solidify our leadership in current and next generation technologies. Turning to slide five, as previously mentioned, we booked 16.6 gigawatts since the July earnings call, bringing our year-to-date bookings to 43.7 gigawatts. With respect to future shipments, after accounting for shipments in the quarter of 2.8 gigawatts, which was in line with our expectations, our total contract of year-to-date backlog is 58.1 gigawatts. Note, while we have contracted volume for India, we have not recognized this volume in our backlog. Excluding our new India manufacturing facility, we are sold out for 2024 as of the July earnings call. As of now, we are sold out for 2025 and close to selling out for 2026. Note, we anticipate having 2026 sold out by the end of the year as we have a number of contracts in late stage negotiations. As we transact further into the future, we are pleased with the pricing trajectory of our technology. The 16.6 gigawatts of booking since our prior earnings call in July have a base ASP, excluding adjusters where applicable, of 31.6 cents. Note approximately 40% of this volume is reflected in the Q3 backlog number in the 10Q. During third quarter, certain amendments to existing contracts associated with commitments to provide U.S. manufacturing products, as well as commitments to supply Series 7 versus Series 6 modules, increased our contracted revenue backlog by $52 million across 1.4 gigawatts, or approximately 3.7 cents per watt. As of Q3, the average portfolio-based ASP reflected in the revenue from contracted footnote in the 10Q increased approximately 1.2 cents versus the second quarter end. As we previously addressed, a substantial portion of the overall backlog includes the opportunity to increase the base ASP through applications of adjusters if we're able to achieve certain achievements within our technology roadmap. As of the end of the third quarter, we have approximately 31.4 gigawatts of contracted volume with these adjusters, which if realized, could result in additional revenue of up to approximately $0.7 billion, or approximately $0.02 per watt. the majority of which will be recognized between 2024 and 2026. As previously discussed, this amount does not include potential adjustments for the ultimate module bin delivered to the customer, which may adjust the ASP under the sales contract upward or downwards. In addition, this amount does not include potential adjustment for increases in sales rate or applicable aluminum or steel commodity price changes. Finally, this does not include potential price adjustments associated with the ITC domestic content provision under the recently enacted Inflation Reduction Act. As a reminder, not every contract includes every adjuster described here. To the extent that such adjusters are not included in a contract, we believe the baseline ASP reflects an appropriate risk-reward profile. And while there can be no assurances that we will realize adjusters in those contracts where they are present, To the extent we are successful in doing so, we would expect a meaningful benefit to our current contracted backlog ASP. Our recent bookings, which include large headline numbers ranging from 0.7 to 2 gigawatts, including a number of significant transactions with existing customers such as Erivat, Silicon Ranch, and Swift Current Energy in the United States. The same is true where Azure Power who has worked with First Solar for over a decade, signed an agreement for 600 megawatts as the first customer to contract for offtake from our new facility in Chennai. Note, as mentioned during our prior earnings call in July, signed contracts in India will not be recognized as bookings until we have received full security against the offtake. As such, deals signed but not fully secured included in this agreement with Azure Power will be reflected within the confirmed but not booked portion of our pipeline graph in the earnings presentation. As reflected on slide six, our pipeline of potential bookings remain robust. Even after year-to-date bookings of 43.7 gigawatts, we retain total booking opportunities of 114 gigawatts. Our 71 gigawatts of mid- to late-stage opportunities includes 62.5 gigawatts in North America, 4 gigawatts in India, and 3.3 gigawatts in the EU. Even with our 16.6 gigawatts of booking since our prior earnings call, our pipeline of mid- to late-stage opportunities has expanded by 52.8 gigawatts since the prior quarter. In addition to previously noted demand drivers, including customers' need for certainty around technology, supplier integrity, and our ability to stand behind our contracts and deliver on our commitments, Demand has been further catalyzed by the enactment of the Inflation Reduction Act. For many customers, this legislation has provided visibility into supportive long-term policy environment through the extension of the solar investment tax credit, the introduction of the production tax credit for solar, and similar incentives with respect to green hydrogen. As a consequence, we are seeing increased demand from both existing and potential new customers and included in our pipeline are several opportunities with multi-year, multi-gigawatt volumes. Turning to technology, we continue to make steady progress with our current roadmap as we worked on the operational and market readiness of our next generation Series 7 modules. Our new Ohio facility, which will be the first in our fleet to produce this product, is on track to commission in the first half of 2023. Early test runs of the semiconductor deposition equipment performed as anticipated, with full-size Series 7 samples delivering efficiency equivalent to the current lead line modules. The Series 7 module has been developed in close collaboration with EPCs, structure and component providers, and the product has benefited from working over the past year with our partners, including Array Technologies and Nextracker, to develop mounting solutions. Their work, along with the support of our customers' EPC partners, is expected to help ensure the product ecosystem is ready and optimized for install costs once Series 7 enters the market. Additionally, we have continued to make progress advancing our CAD-TAIL bifacial modules based on our Series 6 Plus platform and expect to launch a pilot production scale run before the end of this year and a small-scale infield deployment with a strategic customer as early as the first quarter of next year.