First Solar, Inc.

Good afternoon, everyone, and welcome to First Solar's first quarter 2023 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 a listen-only mode. As a reminder, today's call is being recorded. I would now like to hand the call over to Mr. Richard Romero from First Solar Investor Relations. Mr. Romero, 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 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 Bratton, Chief Financial Officer. Mark will begin by providing a business and strategy update. Alex will then discuss our financial results for the quarter. Following their remarks, we will open the call for questions. Please note this call will include forward-looking statements that involve risks and uncertainties, including risks and uncertainties related to the Inflation Reduction Act of 2022. It 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 Widmark, Chief Executive Officer. Mark.

Thank you, Richard. Good afternoon, and thank you for joining us today. As we noted on our last earnings call, we entered 2023 in a significantly stronger commercial, operational, and financial position than the previous year, setting the stage for growth, and improve profitability in 2023 and beyond. The first quarter of the year reflects this direction as we commissioned our latest factory in the United States and started production of our next generation Series 7 modules. Secured a manufacturing incentive award in India, progressed our technology roadmap with a new cell efficiency record, and continued our strong bookings and ASP momentum. It is important to emphasize that our points of differentiation from our unique CAD-TEL technology and vertically integrated manufacturing process to our commitment to responsible solar, continue to set First Solar apart from the competition, and are the primary enablers of our long-term competitiveness. Beginning on slide three, I will share some key highlights from the first quarter. This quarter, we strategically built on our backlog with 4.8 gigawatts of net bookings since our last earnings call at an average ASP of 31.8 cents per watt. The saluting adjusters were applicable. This brings our year-to-date net bookings to 12.1 gigawatts. But at the same time, our total pipeline for future bookings opportunities has grown to 113 gigawatts and includes 73 gigawatts of mid- to late-stage opportunities. From a Series 6 manufacturing perspective, we produced 2.3 six gigawatts of product in the first quarter, with an average watt per module of 467, a top-end class of 475 watts, and a manufacturing yield of 98%. This solid performance is the result of a relentless focus on manufacturing excellence. Regarding Series 7, the ramp at our third Ohio facility, which began production in January, is progressing well. We produced 170 megawatts in the quarter, and recently both demonstrated high-volume manufacturing production capability of up to 10,000 miles per day, which is approximately 60% of main plate throughput, and achieved a production top bin of 535 watts. Developed in close collaboration with EPCs, structured and component providers, Series 7 reflects First Solar's ethos of competitive differentiation. Responsibly manufactured in America, largely using domestically sourced components, including American-made glass and steel, and entirely produced under one roof. It is optimized for the utility scale market and features a large form factor and an innovative new back rail mounting system. This design is expected to deliver improved efficiency, enhanced installation velocity, and unmatched lifetime energy performance for utility scale projects. We are tracking to begin customer shipments as early as June of 2023. And towards that goal, we are pleased to have recently received 37 IEC and UL product certifications. From a technology perspective, in Q1, we certified a new world record Cattell cell with a conversion efficiency of 22.3%. Most importantly, this was achieved in our Cure technology platform. which provides a significantly improved energy profile. In addition, we recently received an award from the U.S. Department of Energy related to our tandem module development. Moving to slide four, we are pleased with construction progress at our manufacturing and R&D facilities expansions. In India, at our new Series 7 factory in Chennai, final building and facility works are nearly complete, and the factory has been energized. Tool installation is ongoing. And we received our first consent to operate and expect to begin production and ramping activities during the second quarter, second half, excuse me, of 2023. Once fully ramped, this facility is expected to add 3.54 gigawatts of annual nameplate manufacturing capacity to the fleet. As previously announced, the Indian facility has also been allocated financial incentives under the Indian government's production length incentive program. First Solar was one of only three manufacturers selected to receive the full range of incentives, which are reserved for fully vertically integrated manufacturing. The incentives are subject to the facility meeting product efficiency and domestic value creation thresholds, which we will evaluate on a quarterly basis beginning in the second quarter of 2026 through 2031. In Ohio, our project to upgrade and expand the annual throughput of our Series 6 factories by an aggregate of .7 gigawatts is also advancing. Tools have been ordered, and the additional capacity is expected to come online in 2024. In Alabama, our fourth U.S. factory has received its environmental permits, and foundation and early factory construction is underway. Tools have been ordered, and the facility remains unscheduled for completion by the end of 2024, with commercial operations ramping through 2025. When fully operational, these expansions in Ohio and Alabama are expected to increase our annual nameplate capacity in the U.S. to over 10 gigawatts by 2025. Our dedicated R&D facility has also commenced construction and will feature a high-tech pilot manufacturing line, allowing for the production of full-size prototypes of thin film and tandem PV modules, and will provide a means to optimize our technology roadmap with significantly less disruption to our commercial manufacturing lines. This facility is expected to commence operations in 2024. Looking forward, we continue to evaluate the opportunity for further investments in expanding our production capabilities to best serve our key markets. Moving to slide five, I would first like to draw your attention to a change in the way we present our contract backlog. In the past, we have shown expected module shipments Going forward, we'll show expected module volume sold, which takes into account the timing of revenue recognition and aligns with volume sold in contracts with customers for future sales disclosures represented in the 10-K and 10-Q quarterly findings. As of December 31st, 2022, our contracted backlog totaled 61.4 gigawatts with an aggregate value of $17.7 billion. In March 31st, 2023, we entered into an additional 9.9 gigawatts of contracts and recognized 1.9 gigawatts of volume sold, resulting in a total backlog of 69.4 gigawatts with an aggregate value sold of 20.4 billion, which implies approximately 29.3 cents per watt, an increase of approximately half a penny per watt from the end of the prior quarter. Since the end of the first quarter, we have entered into an additional 2.2 gigawatts of contracts, bringing our total year-to-date backlog to a record 71.6 gigawatts. During the first quarter, certain amendments to existing contracts associated with commitments to provide U.S. manufactured product, as well as commitments to supply domestically produced Series 7 modules in place of Series 6, increased our contracted revenue backlog by 35 million across 8.8 gigawatts, or approximately 4.5 cents per watt. Since the second quarter of 2022 and up to the end of Q1 2023, cumulative amendments to existing contracts associated with commitments to provide U.S. manufactured product, as well as commitments to supply Series 7 versus Series 6 modules increased our contracted revenue backlog by 157 million across 4.1 gigawatts, or approximately 3.9 cents per watt. Note, we are currently processing additional amendments associated with providing U.S. manufactured product, which were reflected in our Q2 contracted revenue backlog when reported. As we previously addressed, A substantial portion of our overall backlog includes the opportunity to increase the base ASP through our application of adjusters if we're able to realize achievements within our technology roadmap as of the required timing for delivery of the product. As of the end of the first quarter, we had approximately 34.5 gigawatts of contracted volume with these adjusters, which if fully utilized or realized, could result in additional revenue of up to approximately or approximately two cents per watt, the majority of which we recognize between 2025 and 2027. As previously discussed, this amount does not include potential adjustments for the ultimate bin delivered to the customer, which may adjust the ASP under the sales contract upward or downwards. In addition, this amount also does not include potential adjustments for increases in sales rate or applicable aluminum or still commodity price changes. Finally, this does not include potential price adjustments associated with the IETs and domestic content provision under the recently enacted Inflation Reduction Act. As a reminder, not all contracts include 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 assurance that we'll realize the gestures in those contracts when they are presented. To the extent that we are successful in doing so, we could expect a meaningful benefit to our current contracted backlog ASB. Our today contracted backlog extends into 2029, and excluding India, we are now sold out through 2026. Regarding future deliveries, as a reminder, our contracts are structured as firm purchase commitments. In limited circumstances, often related to customer regulatory requirements or a portion of a large multi-year framework commitments, our contracts may include a termination for convenient provision, which generally requires substantial advance notice to invoke and features a contractually required termination payment to us. This fee is generally set at a substantial percentage of the contract value and backs up by some form of security. Termination for convenience provisions apply to approximately one-tenth of our entire contracted backlog, with the majority of the applicable megawatts scheduled for deliveries between 2024 and 2025. Should a customer fail to perform under a contract, the ensuing default would, in addition to their incurring potential dispute resolution and project financing complications, entitle us to remedies that could the receipt of the termination or would include the receipt of termination payment. That said, we and our customers, including many of the largest, most respected developers and utilities in the industry, have long taken a relationship-based versus transactional approach to contract. As a result, this year alone, we have booked multi-gigawatt deals with the peak customers, including EVP renewables, LightSource VP, and Leeward Renewal Energy. which signed a two-year, two-gigawatt order announced prior to the call, further expanding their long-standing relationship with us. In choosing to contract with First Solar, our customers value and prioritize significantly more than just the module ASP, including contract integrity, product availability and certainty, ethical and transparent supply chains. For First Solar, this approach provides the opportunity to partner with customers who share our values, and also provides greater offtake visibility, which helps support our long-term capacity expansion plans. This alignment of interest, which has been validated in the past through multiple pricing and supply-demand cycles in this industry, informs and guides our commercial strategy of continuing to enter into long-term multi-year contracts. As reflected in slide six, our pipeline of potential bookings remain robust, with total bookings opportunities of 112.7 gigawatts and an increase of approximately 20 gigawatts since the previous call. Our mid to late stage opportunity increased by approximately 15 gigawatts to 72.6 gigawatts. That includes 65.6 gigawatts in North America, 4 gigawatts in India, 2.7 gigawatts in the EU, and 0.3 gigawatts across all other geographies. Included within our mid to late stage pipelines are 4.7 gigawatts of opportunities that are contracts subject to conditions precedent, which include 1.9 gigawatts in India. As a reminder, signed contracts in India will not be recognized as bookings until we have received full security against the off day. Turning to slide seven, our research and development efforts have continued to be the driving force in the advancement of our technology. In Q1, we established a new world record research conversion efficiency for Cattell, achieving 22.3% efficiency, as certified by the United States Department of Energy's National Renewable Energy Laboratory. The record-setting research cell was constructed at our California Technology Center. Notably, this new record is based on our current technology, which in addition to increasing efficiency, as meaningful lifetime energy improvements in real-world conditions. Driven by a superior temperature coefficient, best-in-class cell stability, while maintaining First Solar's industry-leading quality and reliability, our CURE technology provides for an up to 6% increase in expected lifetime energy relative to our previous record cell technology. Additionally, the U.S. Department of Energy recently provided two grants associated with our industry-leading points of differentiation efforts. These include a $7.3 million award to First Solar to support the development of a Cattell tandem module for the residential rooftop segment, and a $1.3 million award to the University of Kansas, which is collaborating with First Solar and the Idaho National Laboratory to develop a low-cost next-generation method to optimize solar module recycling. Before turning the call over to Alex, I would like to take a moment to discuss the policy environment in our key markets. In the United States, with respect to the Inflation Reduction Act, we continue to await guidance related to the domestic content bonus provision. We believe it is imperative that the United States Treasury Department issue guidance consistent with congressional intent of the IRA, which is to nurture true domestic solar manufacturing ensuring a robust domestic supply chain for American-made solar bonds. It is critical the guidance recognize that to qualify for the bonus, at a minimum, the manufacturing of solar cells must occur in the United States. This is not only consistent with clear objective of the IRA, but it's also supported by the legal framework under the Buy America Act regulations expressly referenced by Congress in the enactment. While the intent of the IRA the regulations governing it are clear, it is unfortunate that sections of the industry are advocating that Treasury grant some form of waiver that would allow bonus credits for solar panels assembled using foreign sub-components such as solar cells. We believe that any such waiver runs contrary to the letter of the law and congressional intent. The purpose of the bonus credit is to incentivize domestic manufacturing and the creation of a domestic solar supply chain and not to create an entitlement simply to support foreign manufacturers. With regards to international policy, we are seeing some progress in the EU, which has released its new state aid guidelines in the form of the temporary crisis and transition framework and a draft of its net zero law. The state aid guidelines create the framework for allowing EU member states under certain to match aid received by clean energy technology manufacturers elsewhere, including under the IRA. The net zero law would establish new ambitions to meet regional needs with domestically produced content, prioritize net zero projects and technologies, and address existing issues such as permitting. As previously mentioned, policy, among other considerations, continues to influence our evaluation a potential additional manufacturing expansion. Such expansions would require further clarity, including in the U.S., satisfactory Treasury guidance with respect to domestic content, and in Europe, further clarity on EU member states' incentives for domestic manufacturing. And I'll turn the call over to Alex, who will discuss our Q1 results.

Thanks, Mo. Following on slide eight, I'll cover our financial results for the first quarter.

Net sales in the first quarter were $548 million, a decrease of $454 million compared to the fourth quarter. Decrease in net sales was primarily driven by an expected shift in the timing of module sales as we increased shipments to our distribution centers, both to mitigate logistics costs as well as to align future shipments to customers with contractual delivery schedules. Along with the completion of sales, our Lucille Norte project These decreases were partially offset by an expected increase in module ASPs and certain earnouts on legacy systems projects. Gross margin was 20% in the first quarter compared to . This increase is primarily driven by expected benefits from the Inflation Reduction Act of 70 million and lower sales rate, partially offset by 19 million of ramp costs on new Series 7 factory . Although logistics costs decreased during the quarter, they continue to remain elevated relative to pre-pandemic levels. During the first quarter, they reduced gross margin by 15 percentage points. As we move into the second half of the year, we expect to see a reduction in logistics costs radically. As further described in our 10Q and most recent 10K, the Inflation Reduction Act offers certain tax benefits for solar modules and solar module components manufactured in the United States and sold to third parties. For eligible components, the benefit is equal to $12 per square meter for a PV wafer, 4 cents per watt for a PV cell, and 7 cents per watt for a PV module. Based on the current form factor of our modules, we expect to qualify for a benefit of approximately 17 cents per watt for each module sold. We recognize these benefits as a reduction to cost of sales in the period the modules are sold to customers. In the first quarter, 158 megawatts of the U.S. produced volume sold was produced in 2022 and was not eligible for any of these benefits. SG&A and R&D expenses totaled $75 million in the first quarter and increased to approximately $1 million compared to the fourth quarter of 2022. Production style of expense, which is included in operating expenses, was $19 million in the first quarter, decreased to approximately $13 million compared to the fourth quarter, driven by the start of the plant's qualification. our new Series 7 factory in Ohio. Our first quarter operating income was $18 million, which included depreciation, amortization, and accretion of $69 million, production startup expense of $19 million, and share-based compensation expense of $7 million. With regard to other income and expense, our first quarter interest income increased by $8 million due to higher interest rates and cash and time deposits. As a reminder, other income in the fourth quarter includes the gain of $30 million in connection with the sale of our Luz del Norte project, as project lenders agreed to forgive a portion of the outstanding loan balance as part of that transaction. We recorded a tax benefit of $7 million in the first quarter at a tax expense of $1 million in the prior quarter. Decrease in tax expense is driven by excess tax benefits associated with share-based compensation awards, the best during the period, partially offset by higher pre-tax income. Combination of the aforementioned items led to first quarter diluted earnings per share of 40 cents compared to a fourth quarter net loss per share of 7 cents.

Next on slide nine discuss select balance sheet items and summary cash flow information.

Now cash, cash equivalents, restricted cash, restricted cash equivalents, marketable securities ended the quarter at 2.3 billion. That's 2.6 billion at the end of the prior quarter. This decrease was primarily driven by capital expenditures associated with our new plants in Ohio, Alabama, and India, and payments for operating expenses, partially offset by a drawdown on our India credit facility, and advanced payments received on future module sales. As it relates to advanced payments, substantially all our contracts in our backlog, at the time of booking, we typically require payment security in the form of cash deposits, bank guarantees, surety bonds, letters of credit, or payroll. targeting up to 20% of the contract value. During 2022, as we started contracting further into the future, we generally started requiring a higher percentage of cash deposits. Reflecting on our consolidated balance sheet of deferred revenue, these deposits totaled approximately $1.3 billion as a quarter end and are providing a significant portion of the financial resources required on their existing expansion efforts. Total debt at the end of the first quarter was $320 million, an increase of $136 million from the fourth quarter as a result of the low drawdown under our credit facility related to the development and construction of a manufacturing facility in India. Our net cash position decreased by approximately $0.4 billion, $2 billion as a result of the aforementioned factors. Cash flows used in operations were $35 million in the first quarter. Capital expenditures were $371 million. Given recent uncertainty in the banking sector, I would like to note that our investment policy and approach to managing liquidity focuses on preservation of investment principle and immediate availability of adequate liquidity, followed by return on capital. To ensure this policy, we place our investments on a group of high-quality financial institutions focused on counterparty creditworthiness and diversification. We do not have cash invested in regional or super-regional banks, and in the course of increased our holding of U.S. traders. In addition, we continue to evaluate putting in place or involving credit facilities to support jurisdictional cash management, as well as provide short-term optionality. The slide line of full year 2023 guidance is unchanged from our previous earnings and guidance call in late February. I'd like to reiterate that from an earnings cadence perspective, as previously noted on our February earnings guidance call, we anticipate our earnings profile will be higher in the second half of the year due to contractual deliveries timing of first sales of our Series 7 product, and the timing of recognition of Section 45X benefits driven by both the timing of volume sold as well as the inventory lag whereby products sold in the early part of 2023 may have been manufactured in 2022. For Series 6, going on from the sale of 158 megawatts in Q1 that was not eligible for the Section 45X tax benefit, we have approximately 50 megawatts of U.S. manufactured product remaining in inventory that is not eligible for Section 45 , substantially all of which is expected to be sold in the second quarter. With regards to Series 7, we expect to begin shipping products from our third Perrysburg factory in June, and therefore expect both revenue and Section 45 benefit recognition in the second half of the year. From a volume perspective, we expect first half volume sold, leaving 1.9 gigawatts of sales in Q1, total 4.3 to 4.5 gigawatts. From a Section 45X perspective, based on the aforementioned factors, we expect to recognize approximately 25% of our full year guidance in the first half of the year, and approximately 75% in the second half. As it relates to a longer term outlook beyond 2023, we plan to hold an annual stay at our Ohio campus on September the 7th of 2023, which will include a live broadcast. So, in slide 10, I'll summarize the key messages from today's call. Demand continues to be robust with 12.1 gigawatts of net bookings year-to-date, including 4.8 gigawatts of net bookings since our last earnings call. So, the average ASP is 31.8 cents, leading to a record contracted backlog of 71.6 gigawatts. A continued focus on manufacturing technology excellence resulted in a record quarterly production of 2.5 gigawatts, and our India, Ohio, and Alabama expansions remain on schedule. We also achieved a record cash flow conversion efficiency of 22.3% based on our Cure technology platform. Financially worth 40 cents per share, we end the quarter with a gross cash balance of 2.3 billion, or 2 billion net of debt. We are maintaining our 2023 guidance in full, including full yet learning to lose a share of seven to $8. With that, we conclude our fair remarks and open call for questions.

All right.

Thank you, sir. Just a reminder, that is star one for questions. We will go to Philip Shen, Roth MKM.

Hey, guys. Thanks for taking my questions. Last quarter, you talked about how bookings might decelerate. We saw some of that this quarter. But the ASPs for the bookings were in line, if not higher. Actually, they were higher versus last quarter. How do you expect bookings to trend in Q2? We have some of that data now, but for the rest of the quarter, Q3 and Q4, and then how do you expect that bookings ASP also to trend? And now that you're sold out through 26, when do you expect to sell out at 27? Thanks.

Yeah, I think from 26 and 27,

current supply plan being sold right now. I would say a little bit more of that is in 27 than 28, but I think we're making good progress on both of those years. I don't know if I want to commit to a specific date of when we would sell on 27, because we'll do 27 the same way that we did with 26. So if customers who want 27 buy, we're going to want to tie that into multiple years. So we're going to leverage that as best we can across the balance of the decade. So I don't think that's important how quickly we sell it out, but it's how we use that 27 volume strategically to create more multi-year agreements on visibility as we go through the balance of the decade. As it relates to bookings, yeah, I mean, look, we had 60 days basically since the last earnings call, and so you would expect just from that reason alone it's going to trend down. But the underlying demand, which is reflected in our total pipeline as well as our middle-age stage pipeline, as we indicated in our prepared remarks, has continued to grow. So that's extremely encouraging. We have a number of very large deals with strategic counterparties that we're still working through. And if we are successful in closing one or two of those in the second quarter, we could see a very strong result for the second quarter. Plus, if we can close more than a handful of those, it's now through the balance. before being reasonably strong. But as you indicated, we're longer dated in some of those commitments, so we'll have to see how it plays out. ASP-wise, I mean, the great thing about having such a strong position where we are right now is we can be patient and book deals that make sense. And there are certain counterparties that we've had ongoing conversations with where we just can't get to a point that is agreeable on price, so their expectation relative to where our expectation is that there's a gap. So, we'll continue to see if we can close those gaps, but if not, you know, there's enough opportunity with other partners out there that we think we can continue to get, you know, strong ASPs. What I haven't said, I want to make sure clear that as we do book the India volume, and we've indicated before that India volume will have a lower ASP, but still a very attractive a gross margin on cents per watt basis, as well as on a percentage basis. Plus now that, you know, we also have the opportunity for the production length incentive, which, you know, will carry forward into making those opportunities more accretive if we're able to realize that benefit. So ASP trends will continue to, you know, work through them in a very patient manner for the US. You know, we're pretty optimistic with where we are right now, and we'll continue to see how the balance of the year plays out. And also as we indicated, We have more opportunity to look to capture technology adders. We also have the opportunity to capture the domestic content in Series 7 uplifts that are already embedded in our contracts. And I think the team did a great job in the first quarter here realizing another $35 million ASP uplift because of that. And as I indicated, we have a number of other deals that we're working through right now to close, which will then be captured and reported in our next quarter files.

Next, we'll take a question from Kashi Harrison, Piper Sandler.

Good afternoon, and thanks for taking the question. So my question surrounds your capital allocation strategy. So, you know, if we look over the next 10 years or so, it looks like you're positioned to generate, call it, you know, north of $10 billion from the manufacturing credits just based on what you've announced so far. Seems like it would be a pretty questionable political move to use that cash to return capital to shareholders. and there's only so much money you can spend on R&D each year. And so, you know, Mark, Alex, when you look at the business over the next decade, assuming Treasury guidance comes in line with your expectation, is it a safe assumption that you're going to use that cash to expand manufacturing capacity? And if not, what are you going to do with all that cash?

So, look, I think that Niamh's The answer is it's not going to be a problem for us over the next couple of years. If you look where we are right now, we started this year with $3.6 billion gross, 2.4 net. We're planning to end the year from a forecast basis, about 1.35, I think, is the midpoint, so down a billion or so. Over that time, we got $2 billion in the capex from the guys, so operating cash flow is obviously strong. But I look forward beyond that. Clearly, you know, we've given a view of how we think about cash in the past, right? We start with working capital and running the business. That has come down a little bit since we exited the systems business, but at the same time, as we grow the module business, you do have increasing working capital. We talked about growth expansion. That's clearly where we'd like to use the money most, and that's the best use of our cash, the highest ROIC at the moment. The project systems business is gone, basically. There is potentially some use around M&A. We've talked in the past, M&A used to be focused around developing business and acquiring platforms and projects. More likely to be used now on the development side, R&D side, manufacturing side. If we get through all of that and we can't find uses for capital to increase it and make sense, we would love to return. But I think given the cycle that we're in right now, we're going to have significant opportunities to deploy capital to increase manufacturing over the next few years. The other piece I would say is that As we think through needs going forward, we talked a little bit about some of the constraints in the supply chain in the near term. As you're seeing more announcements in the U.S., as we continue to grow, there may be constraints that we either can choose to or will need to help mitigate in the supply chain, which may necessitate some capital investment across areas that are adjacent to our module manufacturing directly.

So there's other areas where we may either look to or potentially have to deploy capital in the short term.

Up next, we'll hear from Maheep Mandaloy, Credit Suisse.

Hey, good evening. Thanks for taking your questions. Maybe just on the India PLI, could you just talk about how to think about from an accounting and cash point of view, similar to the US credits, and any thoughts of expansion there? And secondly, just on the cadence on sold versus produced, should we expect a similar cadence between the two as we saw last year through the quarters this year? Thanks.

Yeah, so I think on the PLI we're still working through how that accounting will work. It's a return of capital of about 24% I believe against the facility cost that's going to take place over five, six years. And we'll update you on the accounting as we work through that. I'll leave Mark to talk about the expansion. But if I just look through where we are in terms of your question on production versus sold volume. I think this is something that there's some confusion around some of the analyst reports essentially around timing. We, from a production perspective, we will be growing production across the year, but it's not significantly back-ended in 2023. However, from a sold perspective, it is fairly back-ended. And we guided to a midpoint of around 12 gigawatts of sold volume this year. We sold 1.9 in Q1. And in the remarks just now, we said that guiding to a first half of 4.3 to 4.5, so the midpoint of 4.4 for the first half of the year. And that leads you to 2.5 gigawatts in the second quarter, and then leads you to a second half number of about 7.6. So you can see that from a sold volume, we're roughly a third, two-thirds weighted first half of the year to the second half of the year. If you think about why that is, it's a function partly of timing of customer demand when customers are requiring shipments. There's also a function of our Series 7 production beginning in Q1, continuing through Q2, but we're not beginning to shift that product until the back end of Q2. And so you're not going to see the timing of revenue recognition to that come until Q3 and Q4. So that's what's pushing that sole volume out. And then, of course, you see a similar dynamic in terms of the Inflation Reduction Act recognition. If you look at how that plays out, we said in the call you're going to see something like quarter of the total revenue recognition from the benefit around the inflation reduction expected point of X happening the first half of the year, the remainder in the back half of the year. And that's, again, a function of timing of U.S. sales from our Series 6, the fact that you've got some inventory lag carryover of Series 6 being sold that was produced in 2022 and therefore doesn't have credit and you're seeing as well. Yeah, as it relates to the expansion of India, India is obviously a very important part for us and one that we're continuing to look to grow. I think there's a sustainable demand profile there, and if you look at their load expectation and load growth between now and the end of this decade, you know, it could be upwards of a 60% increase, and they're the lowest cost form of new generation to help serve that load growth is going to be renewable solar, obviously being the primary one. So a lot of growth, a lot of opportunity, our technology extremely well positioned in India. So India is a very attractive market. As we scale up this factory, we'll continue to assess opportunities for additional investments and further capacity expansion in India. But I would expect us, if things progress as we currently envision, between now and the end of this decade, we'll clearly have more than one factory in India.

Next, we'll take a question from Brian Lee, Goldman Sachs.

Hey, guys. Good afternoon. Thanks for taking the questions. Just kind of going back to Phil's question around bookings, ASP trends, you had the 30.8 cents per watt, if I recall correctly, last reported bookings from a quarter ago, and then it's 31.8, so it's up a penny a lot quarter on quarter. I know there's a lot of moving pieces, but can you give us a bit of you know, color around kind of how, you know, you had a penny per watt increase from quarter to quarter on bookings. Was it, you know, Series 7? Is it more US-made modules? I know you mentioned, Mark, the moving pieces around India potentially bringing that blended number down over time. But just wondering if you can give us some of the moving pieces as to how to think about price trends going forward, given it seems like there's still some leverage you're able to pull to get that number higher given the result here. And then just follow up on capacity expansion. Seems like, you know, you guys have been patient on that front, but any updated thoughts on timing and what maybe some of the gating factors are around, you know, announcing more capacity given, you know, clearly the demand environment continues to be in your favor and now you're almost sold out through 27. Thanks, guys.

Yeah, it relates to the bookings and kind of the flip to the ASP sequentially. Actually, there's a pretty Pretty good mix. When I look across, you know, call it five gigawatts, largely four deals that made up most of that bond. Two, I think, we announced. One was EDPR, and the other was Leeward. And one of the things, just to be clear on the Leeward, is that, and you also notice that we also have contracts subject to CP bucket at our disclosure. I think it's about four points. Almost five gave us 4.7 or something like that. of which 1.9 of that is India. You know, not all of that volume from Leeward was actually counted in their booking because there is a provision in there that could flex it up or flex it down. And what we've done is we've taken a percentage of that volume and it's reflected in the contract subject to CP. But anyway, just want to make sure that's clear, that not all the 2 gigawatts is actually in the bookings for the 4.8 because a portion of it is in that contract subject to CP bucket. And again, it can flex up or flex down. But when I look at those bookings, it's a good mix of international and domestic. It's a good mix of Series 6 U.S. and international. It's a good mix of Series 6 and Series 7. So, it's not skewed towards one or the other. I will say that clearly the ASPs that are represented in there for those different variants will be different. So, you know, and I said this before, the international volume is generally going to be lower than domestic volume because to the extent we're selling it to the U.S. market because of the domestic content value equation of the domestic ITC bonus. There's also some amount of that volume that went into Europe, which was at a lower ASP. when I look at it, it's relatively diversified. There's diversity of product, diversity of geography, you know, that blundered still to a very strong result for the quarter. And we're obviously very happy with that. Now, it's also lower volume than we've done in the last quarter. And generally, when you see much higher volumes and larger aggregate purchasing power and, you know, multiple year agreements, you know, you may see ASPs, you know, more aggressively into that situation. So, you know, I wouldn't, I wouldn't attribute the increase to any one lever, but what I would say is we're still very happy with the market and the opportunity and the ASPs that we're receiving. As it relates to capacity expansion, look, as we said, the primary gating factor right now is clarity on policy. And I said it in my prepared remarks, if the domestic content stays true to the congressional intent of IRA and it truly requires a highly component here in the U.S. in order to qualify, and a bonus being truly a bonus and not trying to create some form of entitlement, which we believe that it should include at least the cell, if not beyond the cell, as part of the domestic content requirements to be manufactured here in the U.S. You know, that's going to be a key determining factor in terms of new capacity. I've said before that if there's some reason that that is not the decision, if it's module assembly only, then we've got to reassess in terms of how do we engage with best serving our primary market here in the U.S. And it may not necessarily be a new factory. It could potentially be a finishing line here in the U.S. because that's what the interpretation is by Treasury, DOE, and the White House that that's what they want. They want module assembly. They don't want module manufacturing. If that's their decision, then we'll have to assess that from our own perspective and determine what investments we make. But for me, it first and foremost has to start off with policy. And I'd be very disappointed if that's the direction that they went. I think the unique opportunity with IRA here to create an enduring supply chain allows for cycles of innovations here in the U.S., allows the U.S. to be a technology leader with solar and other renewable energies. And let's hope that's where the outcome is. If they choose to go a different direction and not being strategic and long-term in their thought process, in the construct here, then we'll have to evaluate that ourself and determine what's the right deployment of capital.

Our next question is Julian Dumoulin-Smith, Bank of America.

Hey, good afternoon. Thank you guys for the time. I appreciate it. Just moving back to the comments and the prepared remarks about the termination for convenience, just wanted to follow up. I think you guys said one-tenth of your entire contract backlog has that, with the majority being 24, 25. Can you comment a little bit about what kind of provisions or entitlements are provided for contracts beyond 2025 at present? Any kind of other nuances or other provisions beyond just this convenience piece?

What we said is generally our contracts are fixed price contracts. So generally that's how they're structured going out now. We wanted to highlight the termination of the convenience. I think there's been some questions around how strong these contracts are, and so we wanted to make sure it's clear that So, only a tenth of our backlog today of roughly 70 gigawatts has termination of convenience provisions. And the majority of those are for the 2024 to 2025 timeframe, which I think, you know, if you look at where module supply is in that timeframe, you think about timings for which people design plants and finance plants, we think it's relatively low risk those get invoked. We want to try and give you that color as to what was out there. As you go out to further dated contracts, they've always been, which is firm, fixed price contracts with the adjustments that we talked about. So upside, downside around bin class, some adjusters around things like aluminum and steel. I've seen some sales threat adjusters, but generally these are viewed as protections or pass-throughs of risks that we feel are pretty mitigated by the customer versus us. Yeah, and I think we also said is that in some cases, these are regulatory kind of requirements that we have to contract around. You know, these provisions have been in our contracts, and again, a relatively small percentage of our contracts historically. We have not seen customers invoke these provisions to the extent they are in a contract. The other thing I would say is that some of these very same contracts that have these provisions were also out there negotiating with customers on domestic content uplift on ASB. And when those uplifts do happen, there's additional security that has to be posted, which further, in my mind, solidifies the commitment from the customer. Also, most of our customers view this as a true partnership with First Solar. And they know that if they were to invoke something like that, they would be making a decision to no longer be willing to partner with First Solar. I don't think there's many of our customers today that really want to be that vulnerable given the uncertainty which could happen at any point in time, right, between geopolitical issues and challenges between the U.S. and China and other implications that could happen that could have an adverse impact on supply chain in the U.S. It's going to be a while before you get a fully vertically integrated U.S. supply chain that would include poly through module assembly. Our customers understand that's what First Solar brings to the equation, and they bring certainty.

and integrity and i think that will keep most of our partners committed to the long-term relationships and not looking at transactional opportunities ben callow from baird has the next question hey guys uh maybe following on to that first question just capacity uh mark um how do you think about it because i think over capacity is going to become a bigger worry at least from our standpoint in wall street just because we've seen it before, the new announcements. And then my second question is about carbon intensity, your technology, and how that benefits you specifically. I think I read that, you know, creating hydrogen, clean hydrogen will require, to get those credits, will require solar panels that have this low carbon intensity. So maybe there's a differentiation there.

Yeah. When you look at the global capacity and the trajectory of oversupply, I think we can determine what that oversupply is relative to ultimately what the demand is going to be. And I think there's all different views around that in terms of how much growth we could see on a global basis as we progress through the end of this decade. And I do think there are some drivers around demand that maybe aren't fully appreciated, such as green hydrogen. But I think you have to then decouple that and say, where is that, what market is that going to be easily used to address? Like, for example, India, when you look at India and the trade and industrial policies that have been put in place in India, largely say it's going to be a domestic market. I mean, to try to engage and support India on an import basis and to pay the tariffs and assuming you can even get to a point where you have it approved to actually sell into India through the approved list of module manufacturers, that's another hurdle and constraint that has to be addressed. So, the best way to serve that market is going to be domestically. So, when I look at India and say, well, whatever polysilicon it's really irrelevant in terms of the Indian market. You have a similar dynamic, you know, here in the U.S. as well. You know, the polysilicon, I mean, I understand that there's clearly wafer capacity that's being added in Southeast Asia, and the cell capacity, and to the extent they can get polysilicon supply chains that can enable that capacity, which generally are going to be non-Chinese source, probably Hemlock, probably, block or somebody like that, which also know that they're in an advantage situation as it relates to pricing on poly and making sure that they hold it firm. You know, so I think there are some additional challenges that ultimately will have to be addressed for that capacity expansion. And in general, when you look at the capacity expansion where most of the increase is happening, it's not happening in countries like Southeast Asia, it's mostly within China. As you read through most of the announcements around polysiliconid or wafer capacity, expansions and the like. So you've got to break that up to determine what's really a supply chain that can address the U.S. market. And look, we know that there'll be incremental capacity, but there's going to be strong demand here in the U.S. market. And our customers understand that as well. And I'll go back to the discussion on hydrogen. When you think about the key enabler of hydrogen, as an example, you can't do anything until and I'll just use solar as the example. Green hydrogen is going to require some renewable source. Let's say it's solar. Until you take photons and make electrons, you have nothing. And so when you look at the solar capex relative to the total capex of hydrogen and electrolyzers and everything else, it's relatively small. And when you get into the nuances of handful of pennies one way or the other, a lot of these guys that are going to develop these projects, which are multi-year projects, that are only enabled by solar modules, they don't want to take the risk. And so that element of certainty sort of, you know, puts them in a position of let's contract, let's make sure we can get a contract with a trusted and credible counterparty and de-risk their projects. And so we're seeing a lot of that in terms of the conversations that we are having. We're also doing a lot more business with utilities. who also are concerned about their brand, their image, and integrity, and they don't want to get commingled with any concerns around forced labor or other trade issues or be beholden to any geopolitical risks that may happen between U.S. and China over time. And so it's a different risk profile that they're willing to take, and they look to First Solar as their counterparty of choice. The same thing with technology companies that we're seeing with huge low growth and not wanting to be exposed or at risk because of projects. So there's a lot of many different dimensions and elements that factor into this that I think put us in an advantage position and all sort of resonates with our strategy around responsible solar and integrity and transactions and standing behind our commitments with our customers. And I think a number of them fully appreciate what we've done in 2022, right? For the vast majority of the projects that got executed in 2022 were for solar modules, at least on the utility scale side. And, you know, there's a goodwill element of that that I think is playing through with our counterparties. And we referenced a handful of them as repeat customers this year between, you know, LifeSource BP and Leeward and EDPR. I mean, those are great partnerships that we've created over time that are enduring. You know, carbon intensity has always been an advantage of ours. It's embedded in our responsible solar approach. Our CO2 footprint is advantaged relative to our competition. Our water usage, our overall emissions, our ability from a circular economy standpoint and recycling standpoint, all that's an advantage to us. I don't think it necessarily plays out uniquely with hydrogen, but I think it does play out with our brand promise and value proposition that we give to our customers.

And our final question today will come from Colin Rush, Oppenheimer & Company.

Thanks so much, guys. Can you talk a little bit about some of the supply chain keeping up with your expansion, notably the glass supply chain, the dynamics around that? And then the second question I'd be curious to hear about is, as you're working through, you know, some of the portfolios that you're going to supply, if you could talk a little bit about, you know, the size of those projects, you know, how many of them are getting larger and how much you're seeing in terms of a little bit smaller sizes coming in the 20 to, you know, 60 megawatt range that may get built out here.

Yeah, supply chain expansion, I think, Con, you referenced glass in particular. But at the end of the day, the module is two sheets of glass and a back rail or frame of some type, which is a little bit more steel. Glass is critical. It's a key enabler. And we recently, there was a joint announcement with us in vitro around a factory that they're going to now. Start up to to serve our glass needs to the factory that was idle in Pennsylvania, which will now start up and provide cover glass to us. And so 1 of the things that we're doing is we're really diversifying our supply chain from the last standpoint, which is, which is really important for us. We're also in some conversations with with them to provide and with other parties, coded glass, substrate glass. So we're trying to really broaden our reach and engagement. What's also nice about this is some of those kind of parties that we're working with on glass in particular are looking at solar as a strategic market that they want to be a part of. And we've got a great opportunity to leverage that with them and to enable their strategic intent coupled with ours. So I'm more optimistic if you would ask me six, nine months ago where we were, I would say I'm more optimistic now with some of the work the team has done to enable that supply chain from a glass standpoint in particular. Size of projects generally are larger. You know, we're not really seeing many of the projects in kind of that 40 to 60 megawatt. I mean, most of the projects that we're, you know, targeting with our customers are all in the 100 megawatts and generally getting larger as you start to get into the hydrogen space, which we're starting to see some opportunities down that path. I mean, those are, you know, 300, 400, 500 megawatt type of projects. in which, you know, we'll continue to grow at least as that evolves more and goes beyond just maybe smaller pilot opportunities at the full-scale, you know, hydrogen projects that are project-financed and what have you. Those are going to be very large projects, and that's one reason why I think that that demand inflection point on hydrogen probably hasn't been fully appreciated with most of this forecast.

And everyone, that does conclude our question and answer session today. That also concludes today's conference.

We would like to thank you all for your participation. You may now disconnect.