Good afternoon, everyone, and welcome to First Solar's Q4 2018 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at firstsolar.com. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Steve Haymore from First Solar Investor Relations. Mr. Haymore, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, the Company issued a press release announcing its fourth quarter and full year 2018 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 and full year and provide the latest updates around 2019 guidance. Following their remarks, we'll then have time 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 a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?

Thanks, Steve. Good afternoon and thank you for joining us today. I would like to start by briefly discussing our EPS results for 2018. EPS of $1.36 came in slightly below the low-end of the guidance range we provided at the time of our Q3 earnings call. While Alex will provide a more comprehensive overview, I wanted to highlight two items that had a material impact on the quarter. Firstly, late in the year we incurred increased EPC costs in order to meet deadlines for certain U.S. projects. Inclement weather and the late shipments of materials to sites adversely impacted plant construction and project commissioning schedule. The potential of project completion delay was particularly acute at one of our projects in California. To ensure the project capital structure proceeded as plan, we incurred significant acceleration cost to meet key schedule milestones. While the project owner shared in a portion of these costs, acceleration cost impacted Q4 results by more than $10 million. Maintaining the strong relationship was a key priority and therefore we made an investment in our partnership and long-term relationship with this customer. Secondly, in Q4, we continue to make good progress with our Series 6 factory construction start-up and ramp. As a result, we started production at our second Vietnam factory in the first week of this year three months ahead of our original plan and 45 days ahead of our latest expectation. The continued factory ramp across all sites combined with the earlier-than planned start-up of our second Vietnam factory put pressure on our supply chain to support the accelerated schedule. To maintain continuous operations across the entire fleet, we decided to airfreight certain raw materials to our factory, which adversely impacted the fourth quarter by more than $10 million. Accelerating the Vietnam start date helps…

Thanks, Mark. Before getting into the financials for the quarter in detail, I’ll first provide additional context around the factors that led to 2018 results falling below our guidance. There were four key issues that impacted our ability to meet earnings guidance. Firstly, 2018 net sales were $100 million lower than the midpoint of our guidance due to the timing of module sales and delays in systems revenue recognition. The lower systems revenue is associated with inclement weather and also material delivery delays to the projects. Secondly and thirdly as Mark mentioned earlier, we experienced increased EPC cost across several U.S. projects partially driven by schedule acceleration to achieve year-end customer milestones. And we experienced elevated inbound freight costs to expedite raw materials to Series 6 production. And fourthly, 2018 ramp and related costs were $113 million compared to our guidance of $100 million. So, with that context in mind, I’ll begin by discussing some of the income statement highlights for the fourth quarter and full year on Slide 9. Net sales in the fourth quarter were $691 million, an increase of $15 million compared to the prior quarter. The higher net sales were primarily a result of the sales of two projects in Japan. For full year 2018, net sales were $2.2 billion and as mentioned relative to our guidance expectations, net sales were lower due to the timing of both module sales and delays in system revenues. As a percentage of total quarterly net sales our systems revenue in Q4 was 83% which was nearly flat compared to Q3. For the full year 2018, 78% of net sales came from our systems business compared to 73% in 2017. Gross margin was 14% in the fourth quarter and was impacted by ramp charges of $44 million as well as…

[Operator Instructions] Your first question comes from Philip Shen with Roth Capital Partners. Your line is open.

Hey guys. Thanks for the question. Just wanted to check in with you on your shipments to customers now that you are shipping currently some of our checks indicate that you may be falling 5 watts per module short in your shipments to customers versus contractual requirements or obligations and this maybe resulting in extra costs. We could be wrong on this one but want to just check in with you on this. Can you comment on whether or not this may or may not be happening and if true, can you provide some color on this and perhaps talk about how long the issue may endure ahead? Thanks.

Yes, so, I think the premise of the question is we want to make it clear that falling short of contractual obligations. We are not falling short of any of our contractual obligations relative to comments of the customers and the product which we need to ship to them. We have as we said before, we have been adders and been deductor. So, we have a contracted commitment that we anchor around it’s extent – it’s higher or lower than there is bin adjustment to the price accordingly for that delta could be up or could be down. So, I just want to make sure that that’s clear. There is nothing that we are doing that would say that we are falling short of our contractual obligation, but to the extent we do have deliver that’s been down would be 5 watts then there would be bin adjustment to the price. And that is happening in some cases and part of it was – I think we indicated on prior calls is that the early production and in particular we’ve been struggling to see the increased penetration of arc. And so, without arc you are going to lose almost two bins of volume. And one of the things we said on the call is our arc penetration has increased now 33 percentage points. So, we are seeing a much better utilization for arc and as a result of that as we go forward and we continue to ramp across the balance of the fleet, some of the early launch issues that we have will be subsided and we’ll be able to make sure that we hit the committed bin that we initially structured around but I want to make sure it’s clearly understand that to the extent that the bin is slightly above or below the contract allows for that. And there is appropriate adjustment to the ASP.

Your next question comes from Colin Rusch with Oppenheimer. Your line is open.

Great. Thanks for taking our questions. This is Kristen on for Colin. You talked a little bit about this in your prepared remarks, but can you provide some additional color on the geographic diversity of the backlog on an annual basis? Just sort of the mix of domestic versus international? And then, what opportunities are you seeing to pick up broken projects for the systems business in the U.S.? sort of correlated to that what the expertise in integrating - your expertise in integrating solar with storage to your pricing strategy for modules?

Okay. A lot there. When you look at the geographic diversity of our shipments for and some of this will come out in the Q – K actually it will come out tomorrow. You will see that there is a high concentration of module shipments that occurred within in the U.S. in the range of 70% or so of the shipments last year were in the U.S. and the balance were in international markets. And again it’s largely reflective of where the strength of the demand is and if you look at our pipeline as you carry forward of the 7 gigawatts of – opportunities about 5.5 of that sits within the U.S. The volumes at which we booked this quarter were largely U.S. we had some volume with a European customer. But most of the call it, 1.6 since the last earnings call was focused around the U.S. and it largely has to do with where our customers are willing to commit. And I think it’s important to understand that, of the large order that came through this year, again lot of the 1.3. That volume is to be shipped in 2021, 2022 and 2023. You will see customers in the U.S. because of certainty around the ITC and wanting to safe harbor, you will see customers having a greater appetite to commit forward and to procure materials that go out that far in the horizon. When you look at some of the international markets, we don’t see as many customers willing to start procuring in 2021, 2022 and 2023, as part of their lack of certainty of the underlying projects or for those modules and where they would go. And so, what we said in the call is that, part of the thinking, when we look at the…

Your next question comes from Julien Dumoulin-Smith with Bank of America Merrill Lynch. Your line is open.

Hey, good afternoon. Thank you. Perhaps just to pick up where you left off, if you can clarify a little bit your comments just now about securing up the backlog here from an ITC perspective, A, how do you think about that accelerating into the year end 2019 given that is the timeline that you need to meet to get the qualify that ITC. And then, secondly, I think you alluded to a gigawatt utility customer in the quarter who they were trying themselves to try to lock up some supply. So, maybe as you think about the potential orders from what you haven’t locked in from an ITC perspective, is that another source of bookings acceleration in the back half?

Yes, I’ll just start with what we are looking at from a safe harbor perspective to ourselves. Similar today to what we’ve talked about on our guidance call in December. So, we are still looking at somewhere between $325 million and $375 million of spend this year. We haven’t expressly talked about what we are going to spend that on, it’s less likely to be on the module side just given the constraints we have in module supply as Mark said, we are largely sold out for the rest of the year. So, we will look at the rest of the balance upfront. There will be some projects that were far enough along that we can use the technical work there. And so, a small piece of that midpoint 350 number that I talked about will be associated with technical working cut. And that will probably be in the range of $25 million to $50 million. The rest we’ll look to spend on – as I mentioned balance of plant with projects that go out into 2021 from a contracted perspective and then uncontract supplies will take about on that 2021 timeframe. The other thing we said from our perspective is that if there is opportunity to spend more, to the point if we are able to pick up projects where other developers are constrained from a capital perspective, and securing type of material, it’s somewhere we would be very happy to invest additional capital. I believe the returns are good. So it’s somewhere, where if we see the right opportunity, when you can spend more than that $375 million top-line that we talked about.

And then, from a customer standpoint, Julien, I mean, the order that we secured here was with one customer, it’s the common conversation that our team is having with a lot of our customers and thinking about the safe harbor and how to - what their particular strategy is, and engaging in conversations with us around that and how we could try to evolve that. In some cases – and this customer is – and they already had a commitments to some volume for this year. So, we didn’t have to – it wasn’t an issue of not having the supply, but what we were able to do is that since we already had contractually had volume on the books for this customer, we then engage with them, or leverage that as your safe harbor anchor and then commit the volumes that’s out in the horizon and when you construct the projects in 2021, 2022 and 2023. So, Alex is right. We are constrained as it relates to the available supply. Now, starting up Vietnam a little bit faster than – Vietnam too little faster because there is a little bit of supply. If we continue to ramp, accordingly, we may see a little bit of opportunity there. Those are small in the rounding. The bigger opportunity I see is, how do we talk to customers today, that have contracted volume that’s on the books and then how do we position that as the anchor for the ITC and then contractually commence with the volume that would sit out and deliver in the 2021, 2022, and 2023 timeframe. So, we are having a number of conversations with customers in that regard.

Your next question comes from Ben Kallo with Baird. Your line is open.

Hi, thanks guys. So I have three questions. First of all, like sites flow, it’s kind of confusing. Could you help me through that? And then, just talk about the cost reduction versus the 40% that you said back at Analyst Day, like you are plus or minus a penny or two from there. Number two, I understand that costs pull forward, but I don’t see megawatts going up. And then, number three, could you just talk about how you are pricing some of these out year contracts? Just because, that we have a hard time going with ASPs we got to 2022. So, how do you think about pricing? Thanks.

Yes, just to explain the graphs a bit more detail. That the graph in the left-hand side of Slide 12 is showing you the Series 6 third-party volumes. If you think about the guidance we gave, the 5.3 to 5.5 gigawatts for the year, you take out couple of gigawatts of Series 4 and then you got to take out the systems piece. So, you are left with what is Series 6 through third-party module deliveries. And when you take that total number, we are saying, this is the break down per quarter of the delivery of those modules. So, that 10% of that third-party Series 6 volume is delivered in Q1, 15% in Q2, 30% in Q3, and 45% in Q4. This really kind of show that on a third-party module delivery basis, we're back-ending the profile pretty significantly in the year. On the right-hand side, looking at the cost, so, the question you had around cost, we talked in the guidance call around long-term or end of year Series 6 cost being approximately 40% lower than our 2015 benchmark for Series 4 with a roughly penny adder associated with increased cost around the frame. So if you take that point over the end of the year, I’d say, that’s a year ending point. You can look at what you think the full year average is. We are trying to make the point that on the average basis, for 2019, you are going to see whatever that average is, it be significantly higher in Q1 as the module is delivered it comes down to Q2 and by the time you get to Q3, you are fractionally under the year average by Q4 your 10% under the year average. So again, when you combine these two, the left-hand side lower volume beginning of the year, the right-hand side, higher cost relative to the average, you are going to see pretty negative impact to the results of Q1 and Q2. And you start to see that when you have much higher volume and much lower cost in Q3 and Q4.

Yes, I think, the way I would say there is – Ben, your question about, our view around the 40% off of our Series 4 reference point plus for the penny or so, penny or two for framing piece, there is a couple of smaller components. That's effectively where we anticipate it to be and nothing has changed there and we are working on opportunities where we can even revise the frame and even take more cost out there because between the frame and it’s easy to go assets really where the vast majority of the build material is and the team is working pretty aggressively on finding a roadmap to figure out we get everything back to the whole entitlement of what we had and there is some encouraging work being done from that standpoint. The other thing I’ll say about that slide is that, one of the biggest levers that moves you from where numbers 20%, 30% higher is in the first quarter versus the average and then trends down to being 10% lower than the average, a big piece of that is the throughput, all right? Because there is a still a significantly amount of under utilization that sits in the first half of the year. And then as we drive that under utilization down, we are at full entitlement across the entire fleet. As you know, we are starting up another factory now. And so, we are going to be – utilization while it’s significantly higher upon launch after the first month or so of production relative to our other factories. It’s still going to be driving this down and there will be some under utilization cost that’s going to be weighing down on the overall average across the fleet. So that's a piece of it.…

Your next question comes from Brian Lee with Goldman Sachs. Your line is open.

Hey guys. Thanks for taking the question. Two from me, I guess, first on that sort of capacity point. You mentioned in mid-December when you gave the guidance for 2019 that you putting Malaysia one conversion to Series 6 on hold. And you’ve mentioned capacity constraints and now you are talking about 2023 deliveries throughout this call. So, given that backdrop, what’s sort of the decision process around bringing that back into the capacity expansion roadmap here? And then, second question just on Slide 12, super helpful with the cadence. Alex, can you help us think about how that average line moves into 2020 with some of the utilization effect starting to fall off and then getting full earned entitlement around the efficiency targets and so forth and so on. Thanks guys.

I’ll take the capacity and then Alex could take the other one. So, Brian, as we said, when we – at the end of this year, we will ramp down two of our factories in Malaysia. We will immediately start the transition of one of them. The other one is continuing to be evaluated and it’s really being evaluated based off of market demand and our ability to capture the bookings that we need in 2021 to get a high level of confidence or ability to sell through that volume. And so, it’s really, it’s demand-related, demand-driven and as we continue to book, then we will somewhat crystallize our decision around that and we’ll get more and more comfortable. Why we’ll say though is that, every one of those factories that comes up in essence creates pricing power, because it creates scale. And that scale enables us to enhance our competitive position and then it allows us to capture volume in other markets that we may not be participating in today. So, I am very motivated to get that factory up and running. But it’s highly dependent upon our ability to clear the market, acceptable margins and if we continue to do that, then I think the likelihood of starting that conversion on that second plants and really be on a third Series 6 factory in Malaysia will start to crystallize.

And Brian. I can’t give you guidance on that far, so, what I can say, I guess, is that, as Mark mentioned, a lot of the cost, majority of the cost sits between the two pieces of glass on the frame. So that’s where we are going to be spending a lot of our time. On both, so, on the frame, we are impacted by the tariffs. We are looking to optimize the frame further. So, we had some movements in the frame in terms of design from where we originally came out with Series 6 and some of the modules we produced. So we are looking at can we optimize design to use less aluminum in that frame. On the glass side, we mentioned on our guidance call in December that we had some projects that we are looking at that may impact start up and one of those we talked a little bit of that was trying to optimize some of the glass. So we today pay more specialized processing on that glass and that’s something we need to bring in-house to try and optimize pricing. So, we are continuing to work that route on the glass side and on the frame side both. And then, beyond that, we will continue to work the rest of other materials. But a lot of that will get come from increased scale. With scale, we get pricing power and we get efficiency and lot change as well.

Your next question comes from Paul Coster with JP Morgan. Your line is open.

Yes, thanks. Couple of questions. You saw some revenue recognition slip to 2019, but you didn’t raised the revenue numbers for 2019. I am wondering if it’s something due to PG&E and SC&E or whether it's supply constraints, perhaps you can just talk us through the puts and takes there is why you didn’t increase the 2019 revenue guidance? The other question I’ve got is that the ramp cost seems to be increasing. I listened to the first – the guidance you gave for 2019. What changed? If you can just sort of talk us through the process by which we gotten here? Thanks.

Yes. So, on the guidance piece, we've got a broad range in the guidance since we just talked about on Slide 12 a significant amount of the revenue and margin is back-ended for the year. So, obviously that’s in the fact that we have a guidance range, but you can see the small changes in timing could have large impact to results at the back-end of the year. There is some risk around SCE. When we think about SCE and I don’t think it’s a significant risk for us. It’s hard to evaluate. You got to look at what’s happening with PG&E itself. How California and FERC and the bankruptcy courts will deal with that and then, how that specifically applies to the fact on circumstances around SCE in their territory. So we are monitoring that. We do have assets that we are selling this year. We have three assets – currently running at competitive process, we are seeing high demand for those. If you look at SCE’s credit today, the bonds still range at investment grade. You haven’t seen the yields that widen incrementally. We haven’t seen – gap like you have on PG&E. So I think we’ve got good confidence, but there is still risk around those processes. So that's a piece of it. But then the other piece is we just – we are at only eight weeks into the air. So, that will need to make a change in terms of overall guidance. We’ll continue to evaluate guidance as we go into 2019. On the ramp piece specifically, all you are seeing is a change in geography from start-up moving into ramp and it’s a function of the timing that’s bringing up the Vietnam factory. So, effectively, we’ve decreased start-up, bring that up early, but it’s increased ramp and you see that in the half percentage point change in the gross margin guidance and that’s offset by a $15 million decrease in the start-up cost in the OpEx. So, those two net out to zero change to guidance. It’s just geography based on the timing as the Vietnam plant coming up.

Your next question comes from Michael Weinstein with Credit Suisse. Your line is open.

Hi, thanks for taking the question. This is Maheep Mandloi on behalf of Michael. Given your shipment visibility, can you talk about how much of the third-party sales is fixed or is that fixed what the floating price is for the year? And the second question is on the Series 6 cost structure. Can you talk about when you expect to achieve these target cost structure? Is it still a Q4 target? Thanks.

So, as it relates to shipment visibility and the pricing, all of the – anything that we recognize as a booking has a firm price associated with it. The only impact that it has is, we’ve referenced this before. If we deliver a bin that’s higher than what we initially anchored towards, right, so the contract, we’ll say – let’s use an example. You have to deliver a 420 watt module. We can go down two bins the 410 and then we can up two bins to 430 or we can average to the 420 whatever the math ends up working out to. And those there will be subtle price deltas as you move across. In some cases, that’s like, a quarter percent for each bin. In some cases it’s slightly higher than that. So there could be slight movements in the realized ASP from what the center point of that contract is, but it’s a firm fixed price. So they all have firm fixed price. There is no floating, but for wherever the final delivery is of the product. On the Series 6 cost structure, as we said in the last call, as we exit this year, we’ll be within a couple of pennies from our targeted 40% cost reduction. And that’s important and as we get there, we saw of an issue with the frames that fully optimized and the glass, we got issues and we got a path of how to improve that. And the other is, we are not at the average efficiency that we hadn’t targeted for Series 6, right. So, we knew it was going to take us a couple years and we even showed a slide I think in the Analyst Day of kind of where that average efficiency would be and then we show a more of a mid-term objective of where we want to go with the real wattage for the product. So, a combination of optimizing around the glass, the frame and driving the efficiency, we will be in a much better position as we exit 2020. Should be relatively in line with what our original targeted cost reduction was when launched Series 6 and again, we launched it in November of 2016. So, it’s only a little over three years since – or two years I guess, little over two years. We are not even three years into the journey. So, just put it that perspective and I think tremendous progress that’s been made over that horizon.

Your final question comes from Joseph Osho with JMP Securities. Your line is open.

Well I made it. Thank you. I wanted to go back to the margin comments you made about the systems versus the module business in particular the comments about Series 4. I understand that obviously you’ve got more six allocated to your systems business. But I am wondering if there is any underloading on the four business that’s weighing on those margins, and also how much that might play out as you ramp the business down?

Yes, you are not seeing any underloading on the Series 4. What you are seeing is just the impact of the fact that the Series 6 business is really - still nearly all being allocated over to the systems segment from a revenue perspective and from a core comps perspective. But you are seeing all of the ramp costs coming through in the module segment. So you are seeing a blend of what looks like Series 4, but all Series 6 kind of non-core costs coming through as well. So that’s what’s happening. That it’s not a function of that being any under utilization on the S4 piece.

This concludes today's conference call. You may now disconnect.