Good afternoon, everyone, and welcome to First Solar's Second Quarter 2019 Earnings Call. This call is being webcast live on the Investors section of First Solar's Web site at investor.firstsolar.com. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Adrianna Defranco from First Solar Investor Relations. Ms. Defranco, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its second quarter 2019 financial results. A copy of the press release and associated presentation are available on First Solar's Web site 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 provide updated guidance for 2019. 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 a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?

Thanks, Adrianna. Good afternoon and thank you for joining us today. I'll begin by noting our second quarter loss of $0.18 per share. Despite this result, due largely to increased variable compensation expense associated with the company's short-term and long-term incentive plans, and increased tax expense, which Alex will address, we put a number of wins on the board during the quarter, and are maintaining our full-year earnings per share guidance. The Series 6 program remains on track with improvement across all key manufacturing metrics. Q2 saw the greatest quarterly production run in the company's history. From a bookings perspective, we recorded our largest ever individual order for Series 6 module, and from a shipment perspective we recorded record quarterly shipments. These highlights are a reflection of the team's continued excellence in a very dynamic and changing business environment. Turning to the market, catalysts driving increased PV penetration continue to point to growing global momentum and strong demand. On our last earnings call, we discussed our optimism for utility-scale solar growth driven not just by pure economics, but by the groundswell of communities making strong actionable commitments to renewable energy. The recent uptick in government commitments coupled with growth in corporate activity provide the underpinning for secure and stable growth. In many regions the solar industry has reached a cost inflection relative to coal. In the U.S., the Energy Information Administration has identified a trend of younger and larger coal plants shutting down. And a study by Energy Innovations, released in March, showed that it would be cheaper to replace 74% of U.S. coal with new wind and solar. The study further found that replacing 94 gigawatts of existing coal plants with wind and/or solar would result in a 25% reduction in energy costs. In Europe, the first-half of 2019…

Thanks, Mark. Before discussing the financial results of the quarter, I'd like to note that as we said in our previous earnings call, we anticipated that Q2 would be a breakeven to last quarter and our second quarter financial performance was in line with those expectations. With the sale of the barrel asset in Australia and the Cove Mountain and Muscle Shoals assets in the U.S. continued progress towards additional system sales, and an increase in third-party module sales during the quarter. We remain on track to hit our financial objectives for the year. With regards to sale of the Cove Mountain and the Muscle Shoals assets, these projects are not anticipated to begin construction until late 2019 and early 2020, respectively. However, as noted on the previous earnings call, given the opportunities to optimize valuations and reduce risk, we've sold these assets prior to notice proceed. In addition, in lieu of our traditional sales structure, whereby we would perform the EPC and recognize revenue on a percentage of completion bases over the life of the contract, we have indeed cases sold to project companies with a module sale agreement, and our customers will engage a third-party EPC provider. The structure has several advantages, including earlier cash collection, and reduction of EPC risk exposure as we continue to evaluate the extent we are offering of this service. Note in our public filings. This also has the effect of removing the sold assets from our systems pipeline table, adding approximately half a gigawatt of volume into the module backlog. With respect to the module backlog, that will be updated in our forthcoming 10-Q, although this metric is always impacted by rounding given it as reported in gigawatts and billions of dollars. This course is also atypical circumstances, which will imply a…

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

Hi, everyone. Thanks for the questions. I have three. The first one is, recall the slide that you guys put out back in Q4 of '18, I think it was slide 12, where you had your average cost per watt in Q1 was 30% above that, Q2 5% above that, and then Q4 in '19 was expected to be 10% below average for the year. Can you guys just give us an update as to where things stand relative to that? I know -- pardon me; that you talked about meeting your objective and so forth, how does things stand relative to that, first? And then secondarily, as it relates to bookings, how are bookings looking into 2022, with this bifacial exemption are customers starting to look more closely at the book bifacial offerings by your peers. And then finally, can you give us an update on your view of -- your latest view on capacity expansion, and in general maybe -- capital allocation in general? So thanks for taking all these questions. Appreciate it.

All right, Phil. On the cost per watt and what I did say in my prepared remarks was that we're happy with where we are right now. We met our first-half commitment on the reduction. And as you remembered, it was a pretty steep reduction from first quarter into the second quarter. So we're happy with the first-half results. Still work to be done yet to get to the second-half, a number of things. If you look at the first-half, I mean a lot of it was driven by -- utilization has come up significantly. We've driven up throughput improvements dramatically. Yields have improved significantly. They're all in the metrics that we reflected in the deck, and I referenced it in my comments. And you can clearly see the benefit of that driving down the cost per watt. As I look across what still needs to happen for the balance of the year to get to our cost per watt, it's -- there's no one silver bullet. It's one of many things. We've got labor that needs to come out when we -- through the ramp process and starting of production. We threw a lot of labor into the manufacturing process that we're now in the process of taking out, so there's a pretty significant reduction of labor that should get down the entitlement, where we expect it to be, but in the early ramp phase we threw labor into the process in order to continue to run operations at the highest throughput levels that we can. We've got some building material opportunity still that we've got to capture. We've got negotiations ongoing right now to realize that benefit. And then on top of that there's still -- we got to get the yields up. Yields are at 91%, we…

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

Hey, good afternoon everyone. Thank you for the time. Maybe to just pick up where you just left off, in fact, why don't we talk a little bit, if you can, on this cost per watt trajectory, not just heading into 4Q, and I appreciate what a lift that may be already. How do you think about that over time here especially as you think about the scaling the megawatts here too? I mean just -- I want to focus on the cost per watt metric and where we can go from here. And I don't want to preempt too much guidance into '20 specifically, but trajectory-wise, how much more is there to go sort of overall, especially as you see these other products continue to trajectory on cost themselves, be it bifacial or otherwise?

It's hard to go forward with too much detail -- or specifics. But what we said before, even with the commitment when we first launched Series 6 and then obviously a significant cost reduction from Series 4, but that initial indication which was about a 40% reduction relative to our Series 4 cost. But that wasn't necessarily an endpoint of a destination that we still had room to run. And the two most significant levers around that are continuing to drive up our efficiency. And then if we can drive incremental throughput across each of our factories, those will have some significant impacts on the cost per watt, and enable us to continue to drive the cost down to create an advantaged position on a cost position to our competition, which is the ultimate goal that we had. Clearly it is challenging in terms of what we're seeing in the marketplace with some of our competitors and their cost. But we think the final destination still allow us to have an advantage position. There's other things we got to work through though that helps us through that destination. And one is the frame. We've talked before about the frame, and even the design of the frame is actually adding cost to the module. So we've got to optimize against the frame. And it really is an optimization across the frame and the glass, so it's a combination of glass thickness and the associated frame that the packaging, that those three components the two sheets of glass and the frame make up a very significant percentage of the overall build material. So how do we optimize against that and drive that down from where it is right now. And, yes, we've got a number of options around how to do that. And then we just need to continue to drive and improve our yields. I Would say the other one that's a little bit of a headwind right now is your yields, as I highlighted, we're at 90-91, and we need to drive that up. So it's not only driving the yields up, it's also where does scrap occur within the manufacturing process. And the more that we see the scrap loss in the backend of the factory it just drive a higher cost because the majority of the bam is already incurred at that point in time. So there's a lot of things we need to do along those lines, but I don't think there should be a view that there's not additional room still to go and continue to drive to as the lowest optimal cost point. A lot of work though to make it happen, but we got to first figure out second-half of this year, and then carry it forward from there.

If I can just quickly ask on the incremental bookings for ASP, how firm is the market at this point? We saw some uptick in pricing for the first time in a while in the U.S. Obviously bifacial is impacting things now, but just where are we on the incremental bookings. And just if you can talk a little bit on market pricing today, as you've already alluded for bifacial?

Yes, so, look, I'm real happy with the two gigawatts or so, north of 2 gigawatts on a gross basis of bookings. I mean that the ASPs that we're realizing on the incremental volumes is consistent with what we saw in the first-half. So if I look across the north of four gigawatts of bookings that we have year-to-date, that ASP is very firm and consistent really across that entire volume. And really only variation you have is what year are you shipping in, right. So some of the bookings that we had in the first quarter still were at 2020, now we're all into '21, we've got some bookings out in '22, and even some that touch into '23. So the real variation that you see right now around the ASP depends on the year which you're bookings against. But we've been pretty pleased with how firm the market has been.

Yes, Julien, one thing we want to talk about that remark I want to make clear is the difference between what you're going to see in the Q when comes through tomorrow in terms of the backlog reported there, which again is rounded and shown in gigawatts and billions, so there's a lot of error that can happen in that rounding, but that's where we've actually been booking new bookings. There are a couple of atypical events that happened, as we mentioned on the call, that impacted the number you'll see in the Q, and that was this customer dispute accommodation we had and discreet events around Cove Mountain and Muscle Shoals, but relative to where we're seeing in the market now for new bookings, we're seeing booking out with 300 and we are very happy with where we're seeing those.

Yes, and just -- and you got to remember too, just the natural cadence is going to be that as we ship you know, we're shipping 19 volumes and we're replacing them with 21 or later volumes, you're going to see some natural erosion of that metric. But at the same time you'll see margin expansion because the cost profile that we'll have in that horizon is going to be much more advantage relative to what we're -- what our current costs of our Series 6 production is. So you've got to look at it from both perspectives, but the metric in and of itself naturally is going to trend down over time.

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

Hey, guys, thanks for taking the questions. I'm going to try to squeeze in three here as well. I guess first off in the past you've been telegraphing some bookings moderation moving through the year. We're obviously not seeing it yet. So maybe just a quick update on your thinking around bookings trajectory as you move through 2019, has that changed versus what you said before. Second on the gross margins you mentioned Cove Mountain and chose a bunch, Alex and I know that moving around in terms of buckets but was that in the module, gross margin of 5% or was it embedded in the systems gross margin and then can you quantify what that impact was. And then just last one, I squeeze in here on the 5% to maybe 7% nameplate capacity increase at Ohio. Mark can you elaborate a little bit more. Is that a debottlenecking process, what amount of CapEx is involved and then is it a quarter or two if you see success where you could then decide to roll it out to Malaysia and Vietnam? Thanks.

Yes, I do the bookings in the class and I'll let Alex talk to the gross margin but yes. I've been real happy with the ability of our sales team to engage with customers and to get to an opportunity to book volumes that are sitting that far out in the horizon. But one of the things as I said in the prepared remarks is that there is a significant undertone of wanting to lock into multi-year agreements. Having certainty around the technology and ability to deliver the committed band of which they're going to rely on and then design around and the fact that we'll stand behind the contracts and there's not going to be repricing or anything else along those lines. And I think that's playing to our strength. The two large orders that we have for the first half of this year one in Q1 and the other one here and even the one that we said that there is a Phase 1 and a Phase 2 really is reflective of that. And it's really the confidence in developing those types of relationships with our partners and obviously a shared commitment and trust and having gotten in certain situations been put in difficult situations by some of our competitors at various points in times and given safe harbor and other things that are in front of us. Nobody wants to be in that type of position where they have a partner that is unable to supply them or deliver against their commitments. So I think that's playing to our strengths, so yes we have sort of given an indication of second half weighted bookings, we clearly are ahead of where we thought we would be. There's still a lot of opportunity even yet for the balance of…

Brian, to the question on gross margins, if you look at how we've typically structured deals historically when we had an EPC as a profit pool associated with the development of profit pool associated with the module and then piece with EPC, those are all lumped together into one large profit pool which would then be recognized on a percentage completion basis throughout the project life. What we've done here is we've sold the development projects asset and then the fully recouped on development costs and taken a development fee upfront. And remember if you look at the risk profile that we talked about at our Analyst Day year and a half ago, and that is higher margin piece of the business and that's flowing through the system segment. And then now we then have a module agreement with that project company to deliver modules in that module revenue and module flow through the module segment over time. So that's the split you're seeing here, we haven't broken out the exact Delta but that's how it's going to be recognized over time.

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

Hi, guys. Can you give your visibility into Safe Harbor demand and pricing, do you expect to extend the Series 4 lines for the first quarter of 2020?

We are looking at Series 4 and opportunities for that, we have gotten requests from customers around availability of Series 4, you got to remember for sure right now we're running two factories in Malaysia excuse me of Series 4. And we've heard them KLM 1-2, and KLM 3-4, 3-4 for sure is closely shutting down, we're going to ramp that up or going to get Series 6 production out of that product most likely by the end of 2020. It's matter what we do with KLM 1-2 and there's a couple of different things, there's someone here domestically in the U.S. and we've got some pull from customers right now to do few things, safe harbor as well as we have some examples which customers are actually having issues with damaged modules, hail damage in particular and asking if there's a way not for solar technology but silicon technology and asking if there's a way that we could probably help support their needs where they may actually replace some of the crystal silicon and use First Solar product. We only have a Series 4 that could actually accommodate that type of request. There's other opportunities we pull through of opportunities internationally for Series 4 in some key markets. So we're looking at that and there's some synergies that we capture think of it as the purchasing power across the glass while the actual form factor of the glasses is not the same between Series 4 and Series 6. There are some synergies along that aggregate purchasing power buying breaks and the like that we could maybe get some additional leverage only for better pricing on cost on Series 4 but potentially better cost on Series 6, so there's a lot of options that are being looked at. We'll have more information around that probably in the upcoming guidance call that we'll do by the end of the year.

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

Thanks so much. So in last call you talked a little bit about the project business and some inefficiencies there that you were working on fixing. Could you just give us an update on what's happened there and what you're able to accomplish in the last quarter?

Yes, so there is I think what we've highlighted and I think was in the last earnings calls, maybe 1-4 that we have put a new leadership team in place and we are evaluating kind of the long-term relative competitive position of our own EPC offering and trying to determine what is the right strategy and the view is very simple, if we can be best in class as it relates to our EPC execution then similar to what we feel like we're best in class in O&M, we're best in class on our module technology if we can do the same with EPC then that'll be the path that we'll pursue if we can't then we'll have to look at options. As Alex indicated in his remarks that we have structured two deals here recently that were only the sale of development assets with follow-on module sale agreement. We chose not to engage with EPC execution at this point in time just given the uncertainty and the changes that we're going through until we can get our feet back underneath us, it's hard to sort of make additional commitments. As it relates to the existing projects and the execution against the existing projects, I think the team has made some very good progress getting where we need to be on cost and schedule. We still need to go. We still need further to go in terms of our ability to meet and satisfy our customers expectations whether it's third-party EPC for example, I would say that we haven't necessarily lived up to a standard that we want to live up to in terms of customer experience and we've got to do better job from that standpoint. But look there's a lot of moving pieces that we're looking at in evaluating a number of different options and we'll look to give you more color when we have more details.

Great. And just one quick follow-up, just as you look at the mid to late-stage pipeline, how many new customers are in that and how much of that is really existing customers that may try to leverage some of that potential new business into price reductions on existing contracts?

I don't have the two orders that we got for this quarter, were new customers, I don't have that exact mix between, what sits in there that turns into existing customers versus new customers. I would argue, though, that there is a pretty high percentage of that pipeline that the customers that we've done business with that's largely representative of what you see in the marketplaces, you know, the next areas of the world, the ETFs of the of the world and others. I mean, they're going to be key customers. And they'll be not only in our contracts volume, but they'll be in our pipeline volume as well.

Our final question will come from the line of Travis Miller with MorningStar. Your line is open.

Good afternoon. Thank you. You answered most of my questions. But at a higher-level question, you mentioned batteries in your remarks there. And just wondering, how does that impact you guys, is this battery development is something that improves the number of megawatts you can sell or does it change pricing at all? Is it something that you might even eventually be involved in, and in terms of offering full package?

Yes. So I mean, let's be clear. I mean, as it relates to the battery, it clearly enhances the overall solar value proposition. We've talked about this before, as we've moved from energy only contract to -- we refer to as flexible solar generation, which allows you to effectively provide value beyond the energy, which could include ancillary services. And we've been -- without being able to leverage that in some key markets and some opportunities. And we've done a number of studies, whether we've done a study with CAISO and NREL, we've done a study with E3 and TECO around that demonstrates kind of that flexible solar value proposition. And then, it gets into dispatchable energy. And so, that's the evolution that we see. And we do believe that you can get to a relatively high solar penetration in a number of key markets before you ultimately have to get to battery integration, but the market starting to trend that way, we do you think it sort of creates this disruptive opportunity where you can displace the deal that we want with APS and what we refer to as our some strange street project, that was an all resource. We competed solar against gas peaker and other forms of generation, and we were able to win a portion of that RFP. So I think it just, it further enhances the overall value proposition. Now as it relates to technology. I mean, the technology, as it evolves right now is dominated by lithium ion and it's really leveraged off of the scale that's being created through ED. And I see that as kind of the near-term, the most competitive solution that will be in the marketplace. So I wouldn't expect us to get into the battery side of it. Now…

There are no further questions at this time. This concludes this conference call. You may now disconnect.