Good afternoon, everyone and welcome to First Solar's Third Quarter 2020 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. At this time, all participants are in a listen-only mode. As a reminder, today's call is being recorded. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis you may begin.

Thank you. Good afternoon, everyone and thank you for joining us. Today, the company issued a press release announcing its third quarter 2020 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 technology update. Alex will then discuss our financial results for the quarter and provide updated guidance for 2020. Following the 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, including among other risks and uncertainties, the severity and duration of the effects of the COVID-19 pandemic. 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?

Thank you, Mitch. Good afternoon. And thank you for joining us today. I would like to start by thanking the First Solar team for delivering a solid third quarter. Our operational financial results were strong, and market demand for our Series 6 technology continues to be robust. We had a number of highlights since our last earnings call, including record Series 6 quarterly production of 1.5 gigawatt, solid bookings of 1.6 gigawatt, commercial production of 445 watt module, and earnings per share of $1.45 bringing year-to-date earnings to $2.65. Our Q3 financial results were driven by a modest second gross margin increase, as well as sales assistance projects. While significant uncertainty remain as a result of the COVID-19 pandemic. We are pleased with our year-to-date performance. As a result of the improved visibility provided by the closing a certain systems project sales. We are reinstating financial guidance for the fourth quarter of 2020. Alex will discuss our financial performance and guidance in greater detail. Turning to slide 3, I'll first discuss our Module segment performance. Year-to-date, we have produced 4.9 gigawatts, including 4.7 gigawatts of Series 6, with each factory averaging over 100% capacity utilization during the third quarter. Throughput was led by our international factories, which averaged 118% and 119% capacity utilization, September and October month to date. Domestically, our Ohio one and Ohio two factories are performing well, averaging 109% and 121% over the same periods. On a fleet wide basis in September and October month to date, megawatts produced per day were 16.9 and 17.9. Manufacturing yield was 96.6% and 97.2%. Average watts per module were 436 and 438 watts. And the ARC bin distribution from 435 to 445 watt modules was 92% and 96%. At the time of our third quarter 2019 earnings call, we had…

Thanks Mark. Starting on slide 8, I'll cover the income statement highlights for third quarter. Net sales in Q3 were $928 million, an increase of $285 million compared to the prior quarter. The increase was primarily driven by the sales of certain Japan and India projects as well as an increase in the volume of Series 6 modules sold to third parties. On a second basis are the percentage of total quarterly net sales and module segment revenue in Q3 was 46% compared to 58% in Q2. Total gross margin was 32% in Q3 compared to 21% in Q2. The System segment gross margin was 33% in Q3 compared to 21% in Q2. This increase was primarily driven by the aforementioned international project sale, and the sale of early stage development assets, including a project entity associated with the General Motors PPA. This is partially offset by $14 million performance liquidated damages stemming from underperformance of third party equipment and several of our legacies EPC projects. Module segment gross margin was 30% in Q3 compared to 22% in Q2, the several positive and negative factors been impacted this Q3 result. Firstly, we recorded a reduction in our product warranty liability reserve, which was primarily due to low warranty settlements than previously estimated for our Series 2 technology. This resulted in a $20 million reduction of our warranty liability and the corresponding benefits the cost of sale. Secondly, certain of our legacy module sale agreements are covered by a collection and recycling program, where a corresponding expense, the estimated future cost obligation was recognized at the time of sale. In Q3, we recognize the $19 million reduction in our module collection and recycling liability due to changes in the estimated timing of cash flows associated with capital, labor and maintenance costs.…

[Operator Instructions] Our first question comes from Philip Shen with ROTH Capital Partners.

Hi, everyone. Thanks for the questions. I have a few here, so thank you for your patience. The first one is on CIGS. I think we picked up recently that you guys restarted your CIGS research efforts. So wanted to get a sense for what that might mean, relative to Cad tel. Second, I think you guys have talked about getting to eight gigawatts of capacity by year end 2021. Can you talk about the conditions that need to exist to consider expanding capacity, and then what the timing and the locations of that might look like? And then number three here, with the ever growing importance of security of supply, especially in the face of the Shin Jong risk and the concentration of capacity in China? Can you talk about how the tenor of conversations with customers may have changed over the past month? And then help us understand how much is booked in 2021 and 2022 and 2023? Thanks, guys.

I'll let Alex take the last one booked in 2021, 2022 and 23. So I'll try to take the other three because he can gather those numbers. So your question is around CIGS and where to the extent that we are looking at that as a technology or really any technology because at the end of the day core module, technology manufacturing company, that's what we do. And we need to continue to find ways to differentiate ourselves on a technology basis and to find ways to be as disruptive as we can with our technology and always increase advantages relative to crystalline silicon and whatever the ultimate competition may be. We've looked at things in the past. We've looked at the crystalline silicon and mono crystalline silicon. We look at perovskites; we look at everything and as it relates, if your question is CIGS is -- an indication that we don't have confidence cad tel that's not anywhere close to the reality. Cad tel in my mind will always be advantaged relative to six. And we believe it has a roadmap to be advantage relative to crystalline silicon. But the reason that we would look at crystalline silicon, or CIGS or perovskites, or organic TV or anything else that may be out there is how do you complement the two? And we've mentioned this before that we believe over time, that multi junction type of technology will evolve into the marketplace. And cad tel in of itself is a very good top so from a standpoint of having a high band gap. So it captures a significant portion of the overall sun spectrum. And when you need that as a second cell underneath that would be what's complimentary to that. And could it be six? Could it be crystalline…

Yes, just to throw the numbers on the end of this. So right now we have 6.7 gigawatts booked for 2021 and 3.6 gigawatts booked across 2022 and beyond.

Our next question comes from Brian Lee with Goldman Sachs.

Hey, guys, thanks for taking the questions. Congrats on a good quarter. A couple of things from my end, I guess first, I know there's a lot of moving parts here on the module gross margins this quarter, I'm getting to like a 26.5% clean number for Series 6, which is 150 basis points higher quarter-on-quarter, I guess first question, is that the right math? And sort of what happened during the quarter that got you the additional 150 basis points because I think last quarter, you were talking about sort of a flattish sequential trajectory? And then the second question would be around, I didn't hear it on the climate. I missed it. But are you still on track to hit that 300 basis point gross margin expansion for Series 6 in Q4, offer this higher run rate if my math is right. And then maybe just lastly, how should we think about cost reductions in 2021? You said you're running at or above the 10% target for this year, what sort of gross margin expansion potential do you have as you move into 2021, given the cost reduction progress you're making, and also the fact that pricing seems to be fairly stable for you guys. Thank you.

I'll start on the gross margin, if Mark also comments on the cost reduction beyond that. So you're doing basically the right math with the reported module segment gross margins about 29.5 and you've got three big things that moved in there, by reduction our warranty liability, about $20 million, but the good guy, reduction in the end of life recycling about $19 million also good guy, then you got an impairment charge about $17 million. That's good again, so we net all of those, you've got about $21 million, or about five percentage points, you take that down to about 24.5. And then we said that within the overall margin, we had about a $6.5 million, or 1.5% negative associated with Serious 4, you add that back in, you get to about 26%. And then on top of that, we did have some COVID charges in that number, there's about $3.5 million of COVID charges, you back that out again, you're going to be another 50 to 100 basis points. So somewhere around 26.5 to 27 around the Series 6 number. So yes, we're a little ahead of where we expect it to be. And part of that as a function of how well the factories have been running. As Mark mentioned in his prepared remarks, we've now managed to get to the cost reduction target that we expected in our high volume manufacturing by the end of the year. In Q3, we're already there on Malaysia site we already achieved that last quarter in Vietnam. So running a little ahead there. In terms of where we think we'll be by Q4, we are going to be about 27.5 and 28 gross margin on Series 6 is the number we're guiding for Q4 so that one held roughly steady from where we were last quarter. And then in terms of cost reduction, beyond that, we are not giving guidance out through 2021. Mark, if you want to comment anything?

If I guess I would say just on that and it's similar to what I said in my comments that the things that are continued to drive improvements to the cost for watt, improve throughput, improve lots, and improve yields. And so what I said in my remarks is that we just opened up the 445 watt bin. And then over the next few quarters, we're going to be at the 455 and north of that shortly thereafter. And so that improvement in watts is going to help drive down costs. So that helps the throughput as we've already highlighted is going to continue to increase. So that's another significant lever that is going to help drive down the cost per watt. The other one is we highlighted just the class supply for our Perrysburg factory which will start to take shape in Q4. And you'll see you realize the full benefits starting in Q1. So the bill of material costs in Perrysburg in particular is going to be helpful. But we're also working on significant -- taking significant costs out of the frame, which will help drive costs further. And then we're actually looking at the change in the profile of the module such that is actually thinner. So when you look at the glass plus the frame, we're trying to make the profile of the module center, which will also then allow us to add about 10% more modules, a little over 10% more modules occur, container from a freight standpoint, which will help drive down that cost. So we've got teams that are really multi dimensional, looking across all aspects and everything that is associated with the cost of the product, and ultimately delivering it to the end customer. So as Alex said, we're not guiding at this point time for 2021 but we are tracking to be ahead of what we thought where we thought we were going to be on a cost per watt basis as we exit the year, which is a good place to be. And then we still have a number of other initiatives that will further drive down on our cost per watt as we go into 2021.

Our next question comes from Ben Kallo with Baird.

Hey, great quarter, guys. So three or four questions here. So can you talked about your utilization here above it was like and how should we expect that going forward? I know Mark had just talked about watts and yield. But how much can we go above nameplate capacity? And when we think about your target for next year, how much is that considered enough? And then you don't talk about efficiency anymore. But can you talk to us about the theoretical efficiency of cad tel? And where we can go from a 445 watt panel and above? And then the last question, I guess, the 2.5 gigawatts before you place new capacity somewhere, if it's in, I get $400 million of CapEx, does it take you selling the systems business before you make that go no go decision? And can you talk about just the incentive to onshore new capacity? Thanks.

So from, Ben, where we ultimately -- what I said in the script was that where we are on our trajectory right now for our two facility plants in Ohio is to drive the nameplate capacity up to 25% above than we were originally launched that. The objective would be to drive it effectively to about low 30s. So there's, let's say there's another five to about eight percentage points of incremental utilization that we would like to get out of all the factories. So first, we got to get everything up to 25%, right. We're not necessarily there yet, you can see by what we're running, we're -- call it 120, I think was the best that we highlighted. Right, now we've got a path to get everything up to around 25%, near term, with a goal of getting it up to low 30s, calling around 30% to 33%, which would be another five to eight percentage points above for our near term objective is, and a little bit of work still to be done there. But I've been very impressed with the team's capabilities making that happen. On the efficiency side, as you indicated, where are we going with the technology? I mean what I did say to someone, one of my very last comments was the entitlement at the cell level for cad tel is 25% plus. And that would translate into something close to call it a 23% or so efficient module, based on normal conversion between cell to module. We're in the process right now of validating. And hopefully, we'll have in the next few quarters, a new record for efficiency with I don't know if there'll be a cell or module. So looking at what we end up doing on that, there are some…

Our final question comes from Michael Weinstein from Credit Suisse.

Hi, guys. Can you talk about what would drive capacity as in a particular regions or existing locations as you've in the past few years, this is driven by a move from the Series 4 to Series 6. Going forward, is it demands growth, or something else that drives it?

It's, whenever we grow, we want to make sure that it's tied to a market indicator, right. And basically really has to start with relative competitive advantage and position of the technology, the market has to be there, right and good thing about where we are now with solar procurement, it used to be policy lead now it's economic procurement, people are buying solar from the pure economic standpoint. And so I don't really see any constraints on the market, per se. But we do look to markets where we would have advantages around our technology. So hot, humid climates, for example, would be a market, they would be attractive to us; again, being closer to the market, or at least driving efficient shipment, logistics routes to access the market is important. The reality is freight cost is 10%, north of 10% of the overall cost of the product. And so if you can get that number down, say cut it in half, you get 5% savings just by getting closer to the customer and reducing your overall freight costs to deliver over the technology. There are many other factors that we use when we screen a site; energy is a meaningful component of our overall costs. So we have to have competitive cost of energy, labor rates have to be competitive, from math standpoint as well, while the processes are largely automated, still major component of the overall cost structure that has to be thought through and whenever we make decisions of where we're going to manufacture. But the reality is that we will grow most likely it's probably going to be outside of the US as we currently envision it, it could change. We have ability just to expand within the footprint and drive more throughput of what we already have here in the US, as we think about where our next factory would be, as we currently envision it would probably be in an international market somewhere close to customers, close to where there's a strong recurring annual demand requirement, and one that we have our technology is well positioned and competitively advantage whether it's hot, humid climates, whether it's the advantages of our Co2 footprint, environmental aspects around our technology, which more and more markets are starting to value. Those are the types of things that we take in consideration as we think about any expansion.

We completed the allotted time for questions. This concludes today's conference call. You may now disconnect.