First Solar, Inc. (FSLR) Q1 2021 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to First Solar's First Quarter 2021 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] 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 first quarter 2021 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 provide updated guidance for 2021. Following the remarks we 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 effect 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 first quarter. Our operational and financial results were strong and market demand for our Series 6 technology continues to be robust. Operationally our second Series 6 factory in Malaysia exited its ramp period. Nameplate manufacturing capacity has increased to 7.9 gigawatts and we're now consistently producing 455 watt modules. Commercially, we have secured 4.8 gigawatts of year-to-date net bookings which include 2.9 gigawatts since previous earnings call. Financially, we reported module segment gross margin in line with our Q1 guidance and earnings per share of $1.96 which includes the completion of our US project development and North American O&M business sales. Overall I'm pleased with our strong start to the year which has positioned us to deliver our annual earnings per share guidance. Turning to Slide 3, I will provide an update on our Series 6 capacity ramp and manufacturing performance. Despite unplanned downtime caused by winter storms in Ohio and a temporary logistic driven billing material shortage in Malaysia along with planned downtime for throughput and technology upgrades which combined adversely impact cost for watt by approximately half a penny. We delivered strong manufacturing results for the first quarter. On a fleet-wide basis in March and in April month-to-date, megawatts produced per day was 20.2 and 22 which represents a 17% and 27% increase compared to December 2020. Capacity utilization was 92% and 99% despite being impacted by the aforementioned planned and unplanned downtime. Manufacturing yield of 96.7% and 97.4% continues to show strength in light of the ramp of our second Series 6 factory in Malaysia, which achieved manufacturing yields of approximately 93% and 97%. As previously mentioned, we started commercial production of our 455 watt module as both our factories in Malaysia and our fleet-wide average watt for module improved to 442 and 445 watts. This manufacturing performance has been a key driver of our cost for watt reduction and gives us further confidence as we execute on our cost reduction roadmap. It's also important to put our recent performance into context. Comparing to April of 2019 to April of 2021, month-to-date our average watt per module has increased by 26 watts. Megawatts produced per day has increased by 144%and manufacturing yield has increased by 9 percentage points. I'm pleased with what the team has accomplished. However, as we drive towards our mid-term goal of 500 watt module increasing throughput by 12% compared to re-rated capacity utilization baseline and increasing manufacturing yield to a mid-term target of 98.5%. We have an opportunity to significantly reduce cost through disciplined manufacturing. As a company, we have demonstrated disciplined execution and agility throughout the startup and ramp of our Series 6 factory including gathering new learning's from each factory rollout and utilizing them in the next. This culture of continuous improvement enables us to increase implementation velocity and reduce our ramp period. While it took our first Series 6 factory in Ohio approximately 22 months to achieve throughput in line with its nameplate entitlement. Our newest factory exited its ramp period in only one month time. The consistent improvement of our factory limitation process gives us operational confidence as we evaluate the potential for future capacity expansions. We believe the combination of a differentiated technology and a balanced business model of growth, liquidity and profitability is a competitive differentiator and will continue to enable our success. Three years ago in April 2018, we commenced commercial production at our first Series 6 factory and today, we have established a Series 6 factory footprint through which we have the potential to reach our 10 gigawatts of nameplate capacity based on our existing efficiency and throughput plans. Looking forward, strong demand for Series 6. A compelling technology roadmap, a strong balance sheet and a largely fixed operating expense cost structure. Our each catalyst as we evaluate the potential for future capacity expansions while we've made no such decision at this time. We are targeting to make a determination by our Q2 earnings call. From the shipping and logistics perspective, experienced by postal [ph] port congestion in the United States along with logistics challenges stemming from February's winter weather events in Southern United States. As a result, certain module deliveries planned for the first quarter were delayed and given ongoing port congestions. We see potential for similar delays in the second quarter which could result in delays in module recognition. While the cost per watt of PV modules has declined significantly in the past decade sales trade has largely remained fixed on absolute dollar basis. As a result, sales trading has become more meaningful percentage of the cost per watt. For example, in Q4 last year and Q1 of this year. Sales freight and warranty reduced our module segment gross margin by 7% and 8% respectively. Note, this highlight for markets with large recurring demand such as the US, India and Europe. The importance of having in-country or in region manufacturing which hence significantly reduce the cost of sales trade. As initially highlighted during our February earnings call, we continue to anticipate elevated shipping rates in 2021. We continue to partially mitigate the impact via the implementation of following initiatives. Firstly, as we improved module efficiency, we benefit from an increase in watt per shipping container and [indiscernible] decline and sales trade for a while. Secondly, as we implement Series 6 plus, we will reduce profile of our frame and junction box by approximately 10% enabling an increase in a number of modules per shipping containers. Thirdly, we intend to expand our distribution network footprint in the United States which we anticipate will increase domestic inventory buffers further reduce exposure to spot shipping rates and provide greater flexibility while reducing shipment timing risk for our customers. Implementation of these initiatives is important in order to help mitigate the effects of the challenging shipping market and achieve our 2021 cost for watt reduction objective. From a supply chain perspective, our strategy emphasizes long-term agreement that reduce exposure to spot pricing for commodities and raw materials. For example, our glass procurement strategy primarily relies on fixed price contracts and partnerships with domestic suppliers. This approach helps de-risk the value of our contracted backlog and provides greater certainty that will be able to meet our expected profitability. Our approach tutorium [ph] is similar, we secure our supply needs through multi-year fixed price agreements whilst driving to reduce CdTe usage per module through optimization of our vapor deposition profits while Tellrium is a key component of our semiconductor material. It is a minor component of our cost per watt given our CdTe thin film is 3% the thickness of a human hair. Also as part of our global high value PV recycling program. We're able to establish a circular economy by recovering more than 90% of the semiconductor material for use in new First Solar modules. Although such recycling on a large scale is still anticipated to be many years out given expected use for lot of modules. This has the potential to significantly reduce our ongoing Tellrium and cadmium needs. In the future, once power plants using First Solar modules reach the end of their useful life. Aluminum which is used in the construction of our frame has recently experienced a price increase to above pre-pandemic levels. Well the head structure we put in place has partially mitigated this impact. We anticipate some cost challenges related to aluminum during the year. However, part of our Series 6 plus implementation we anticipate reducing our frames profile in aluminum usage by 10% which we expect will mitigate a portion of this cost increase. Finally, despite the previously mentioned delays of certain module deliveries in Q2 and a result of our continued manufacturing execution and aforementioned risk reduced supply chain approach. We achieved our module segment gross margin target in Q1. Additionally, by cost of - for certain billing materials, we're tracking to achieve our targeted 11% cost per watt produced reduction between where we ended 2020 and expect to end 2021 while we intend to mitigate much of this impact related to the challenging shifting in market. Our revised target cost per watt sold reduction is 6% to 7%. Turning to Slide 4. In Q1, we completed the sale of our contracted Sun Streams 2 and uncontracted Sun Streams 4 in five projects to Longroad Energy. In April, we completed our uncontracted Sun Streams 3 project to Longroad as well. Across these four projects, Longroad intends to utilize approximately gigawatt of Series 6 modules of which 785 megawatts represent new bookings since the last earnings call. As it relates to our systems business in Japan. Our existing team and competitively advantaged core project development skill set of sitting, permitting, interconnection and securing long-term feed-in tariff contracts has positioned us well in the market. Today, we have an approximately 320 megawatts systems backlog in Japan which includes 55 megawatts of new bookings since the February's earnings call. This backlog is a reflection of our recent success averaging approximately 100 megawatts per year systems booking in Japan between 2018 and 2020. Looking forward in the near term, we have an opportunity to add this backlog with approximately 40 megawatts of Japan's system opportunities with feed-in tariff rights secured as they're pending satisfaction of certain permitting requirements. Across the total portfolio, we have the potential to capture approximately $260 million of gross margin in the next three to five years. With an approximately $15 million per year overhead cost structure. We anticipate the sell down systems projects in Japan will contribute meaningfully to our mid-term operating income. With the national commitment to carbon neutrality and limited domestic source energy generation. The market fundamentals of Japan are favorable to the continuing growth of solar. We continue to build a pipeline of post feed-in tariff opportunities that could target feed-in premiums or corporate PPA opportunities as the market matures. Before discussing our most recent bookings and top line opportunities. I would like to discuss several domestic and international policy updates. At the end of March, President Biden unveiled an infrastructure proposal that emphasized transit, revitalizing power grids and vastly expanding clean energy. While creating millions of jobs and position United States to outcompete China. Additionally the plan is intended to revitalize domestic manufacturing, secure the US supply chain, invest in R&D and train Americans for the job for the future. This is the most far-reaching federal proposal for programs that curb greenhouse gas emissions and address climate change. As the only alternative to crystalline silicon technology among the 10 largest solar module manufacturers globally. With a premier vertically integrated manufacturing process and differentiated CdTe cell technology. We're uniquely positioned to support domestic energy independence in the United States and play a leading role in this plan. We are the largest solar module manufacturing in the United States and directly employee over 1,600 US based associates. Also our domestic supply chain supports thousands of indirect jobs. For example, we procure our float glass from an NSG facility approximately 10 miles from our factory in Perrysburg. Which is the first new float glass line in the United States in 40 years. As a result of this investment, NSG has created long-term and high-quality manufacturing jobs and a domestic supply chain of their own. NSG, soda ash which is the primary material used in glass manufacturing is procured from supplier in Wyoming which is the state that has historically been the largest producer of coal. Pace of innovation is a core to our success. Which starts at R&D lab facilities in Silicon Valley in Ohio? As a reflection of this commitment since our IPO, we have cumulatively invested over $1.4 billion in research and development as the only thin cell module manufacturer of scale. With the manufacturing process that is handled entirely in each of our six factories. We own the end-to-end intellectual property and trade secrets for our CdTe cell technology. We believe the remaining nine largest PV module manufacturers all utilize the same semiconductor material. Additionally, none of these manufacturers are fully integrated relying on varying degrees, on third-party sourcing and intellectual property of upstream polysilicon ingot, wafer and cell manufacturers. While it's difficult to measure the value of the vast subsidies that the Chinese solar industry receives. These subsidies serve to artificially deflate our competitors cost per watt. Resulting in the marketplace that undervalues innovation and where technologies do not compete solely on their own merits. Despite this apparent and outrageous lack of fair trade. The advantages of our vertical integrated manufacturing process and differentiated CdTe cell technology leading to what we believe to be the lowest module manufacturing cost structure in the industry will continue to empower our success. With the Section 201 tariffs currently scheduled to expire in February of 2022, the Biden Administration has a natural window to pursue policies that address the root cause of the problem. China's unfair trade practices. Accordingly, we continue to advocate for and industrial policy that identifies clean tech manufacturing as a national strategic priority to advance US energy independence. We believe that this type of policy would be promoted through incentive by for domestic manufacturing, continued investment in advance, technologies. Closing by American loops and tariff reform. Turning to Slide 5, I'll next discuss our most recent bookings in greater detail. Leading corporate buyers have expressed concerns that due to the decentralized nature of the crystalline silicon supply chain. They're unable to ensure that the solar modules and their systems from which they buy power were not manufacturing use alleged forced labor. While our Series 6 energy quality and environmental advantages are all key differentiators. Customers increasingly are describing value to our vertically integrated manufacturing process, supply chain transparency and zero tolerance for the use of forced labor in our model manufacturing process and supply chain. While the pricing environment remains competitive these catalysts have created bookings momentum for deliveries in 2022, 2023 and beyond with customers seeking to de-risk their projects. Accordingly, we're pleased with our strong year-to-date net bookings of 4.8 gigawatts which includes 2.9 gigawatts since the February earnings call. After accounting for shipments of approximately of 1.8 gigawatts during the first quarter. Our future expected shipment which extended to 2024 are 14.8 gigawatts. Included in our 1.8 gigawatt shipments are approximately 0.2 gigawatts of Series 4 as previously shipped to safe harbor, the Investment Tax Credit. But were transferred to a third-party during the quarter in conjunction with the sale of our US project development business. Accordingly our comparable Q1 shipment number is approximately 1.6 gigawatts including 4.8 gigawatts of year-to-date bookings and 0.4 gigawatts of upside volume related to previously announced purchase order from Intersect Power. We're largely sold out for 2021, have 6.4 gigawatts of potential deliveries in 2022 and 3 gigawatts across 2023 and 2024. Overall the market remains competitive, we're pleased with the pricing levels that we're securing in 2022 and 2023 for our Series 6 plus and CuRe products. Although there remains uncontracted volume yet to be booked the ASP across our aforementioned 6.4 gigawatts of volume for potential deliveries in 2022 is only 11% lower than the volume to be shipped in 2021. Slide 6, provides an updated view of our global potential bookings opportunities. Which now totaled 16.5 gigawatts across early to late phase opportunities through 2024? In terms of geographical breakdown, North America remains the region with largest number of opportunities at 12.9 gigawatts. Europe represents 1.2 gigawatts, India represents 1.2 gigawatts, South America represents 0.7 gigawatts with the remainder in other geographies. As a subset of this opportunity is our mid-to-late-stage bookings opportunity of 7.8 gigawatts which reflects those opportunities we fill could book within the next 12 months. The subset includes approximately 5.4 gigawatts in North America, 1.2 gigawatts in India, 0.6 gigawatts in South America, 0.3 gigawatts in Europe and the remainder in other geographies. Note, this represents victories from our prior earnings call which is largely due to our recent bookings momentum. Finally note, included in the 720 gigawatts is a 1 gigawatt order for US customer that just hours ago we booked. Including this booking in our contract for future shipments. It is just shy of 16 gigawatts. I'll now provide an update on our technology roadmap. As previously disclosed, we launched our Series 6 program leveraging our existing Series 6 toolset which increased our module form factor by approximately 2% and our top production been by approximately 10 watts. Before we implemented this program, at our newest Series 6 factory in Malaysia which is now consistently producing 450 watt modules and we remain on track for fleet-wide implementation of Series 6 plus on the fourth quarter of this year. As previously announced, our Series 6 CuRe modules offer an industry leading 30-year 02% annual warranty variation rate which is up to 60% lower than conventional crystalline silicon product. Additionally, we anticipate improving module efficiency enabling a top production bin of 460 to 465 by the end of 2021. We anticipate this lower degradation rate combined with improved temperature co-efficient and super spectal [ph] response will build upon our existing energy advantages especially in hot and humid climates. As previously indicated, CuRe significantly increased the Series 6 competitiveness against bifacial modules. As a result of the aforementioned advantages as compared to a leading crystalline silicon bifacial module. We estimate that our cure module can produce up to 10% more lifecycle kilowatt hours per kilowatt installed in certain climates with extreme heat and humidity. Finally, we remain on track to implement CuRe and a lead line by the fourth quarter of this year and fleet-wide by the end of the first quarter of next year. As part of our R&D efforts, our CuRe program successfully removes copper from our CdTe vapour deposition process. This enhances the long-term stability of our CuRe modules and based on initial performance in the field and an accelerated live test demonstrates a near zero annual degradation rate. Given PV power plants have useful life of approaching 40 years, a reduction in the annual degradation rate can contribute to meaningfully higher lifetime energy. CuRe along with First Solar's other industry first and only product warranty that specifically covers power loss from cell cracking are recent examples of innovations and enhance our competitive position in the market. Finally, we are continuing to evaluate the potential to leverage the high-band gap advantages of CdTe in a tandem or multi-junction device. A tandem device has the potential to be disruptive high efficiency, low cost an advantage energy generation profile, leveraging many of the innovations in our CdTe cell technology roadmap. Additionally, we believe thin film semiconductor will be the key differentiator to achieve the highest performing tandem PV module. And I'll turn the call over to Alex, who will discuss our first quarter financial results and 2021 guidance.

Thanks Mark. Starting on Slide 7, I'll cover the income statement highlights for the first quarter. Net sales in Q1 were $803 million, an increase of $194 million compared to the prior quarter, an increase in that sales is primarily due to an increase in systems revenue driven by the sales of Sun Streams 2, 4 and 5 project. On second basis, our module segment revenue in Q1 was $535 million compared to $548 million in the prior quarter. And that was given assumptions to project within construction at the time of sale, the majority of the module recognized the revenue in the systems segment. Gross margin was 23% in Q1 compared to 26% in Q4 of 2020. Systems segment gross margin was 31% in Q1 compared to 18% in Q4 of 2020 and this increase was primarily driven by the aforementioned project sales in Q1. Despite the aforementioned delay in certain module delivery as well as higher expected logistics costs. Our Q1 module segment gross margin was 19% which was in line with the guidance we provided on the prior earnings call. Our module segment gross margin in Q1 includes $1 million of charges associated with the initial ramp from manufacturing in Malaysia and $4 million of underutilization expense stemming from plan downsized throughput technology upgrades. Ramping on the utilization expense in total reduced module 7 gross margin by approximately 1%. Also as a reminder sales freight and warranty are included in our cost of sales and reduced module segment gross margin by 8 percentage points in Q1 compared to 7 and 6 percentage points in Q4 and Q3 of last year. Despite utilizing contracted routes, minimizing changes and using a distribution center, we incurred higher rates during Q1. These are constrained container availability yin the global shipping market. SG&A, R&D and startup totaled $72 million in the first quarter, a decrease of approximately $13 million compared to prior quarter. This decrease is primarily driven by $6 million decrease in development project impairment charges between Q1 and Q4 of 2020 and lower share-based compensation expense in Q1, which was partially offset by $2 million in liquidated damages related to US development asset in Q1. Production startup which is included in operating expenses totaled $11 million in the first quarter, a decrease of $5 million compared to the prior quarter. This decrease is driven by the start of production of our second Series 6 factory in Malaysia in February. We also acknowledged the wide spread use of non-GAAP financial measures across financial markets. We recognize the certainty and comparability that consistently providing historical financial and guidance on a GAAP basis comparing to analyst and investors. However, we also appreciate the need to understand non-cash and certain one-time cost in calculating valuation metrics and will therefore as appropriately continue to highlight many of these items. In this context, Q1 operating income is $252 million which included depreciation and amortization of $63 million, share based compensation is $3 million, ramp underutilization and production startup expense totaling $16 million and a gain on the sales of our US project development and North American O&M businesses were $151 million. In Q1, we realized $12 million gain on the sales of certain marketable securities associated with our end-of-life module collection recycling program within the other income line on the P&L. We recorded tax expense of $46 million in the first quarter compared to a tax benefit of $66 million in the prior quarter and the increase in tax expense in Q1 is attributable to an increase in pre-tax income and a discrete tax benefit in Q4 of 2020, $61 million associated with the closing of the statute of limitations on certain positions. Combination the aforementioned items first quarter earnings per share $1.96 compared to $1.08 in Q4 of 2020. Turn to Slide 8 to discuss balance sheet items and summary cash flow information. Our cash, cash equivalents, marketable securities and restricted cash balance ended the quarter $1.8 billion which was largely unchanged compared to the prior quarter. Several factors impacted our quarter end cash balance. Firstly, while we completed the sale of our US project development business and certain equipment on March 31 for an aggregate transaction price of $284 million. The proceeds from the transactions were received in early April. Secondly as previously mentioned, we sold certain restricted marketable securities associated with our end-of-life collection recycling program for total proceeds of $259 million and whilst the intent to subsequently reinvest these proceeds as of quarter end, they were included on the balance sheet as restricted cash. Thirdly, whilst we also completed the sale of our Sun Streams 2, 4 and 5 project during the quarter due to the contemplated payment structure. The closing of these transactions did not have a significant impact on our quarter and cash balance. And finally, the proceeds received from the sale of our North American O&M business were offset by operating expenses and capital expense in Q1. Total debt at the end of the first quarter was $257 million, a decrease of $22 million from the end of Q4. This decrease was driven by payment of loan balance matured during Q1 and partially offset by loan drawn down from projects in Japan. And as a reminder, all of our outstanding debt continues to be project related and will come off our balance sheet when the corresponding project is sold. Our net cash position which includes cash, cash equivalents, restricted cash and marketable securities less debt, increased by approximately $25 million to $1.5 billion as a result of aforementioned factors. Net working capital in Q1 which includes non-current project assets and excludes cash and marketable securities increased by $423 million compared to the prior quarter. This increase primarily driven by $472 million increase in accounts receivables related to our US project development business and our Sun Streams 2 sales which is partially offset by decrease in project assets. Net cash used by operating activities was $279 million in the first quarter which includes the aforementioned increase in accounts receivable relates to the payment timing of our US project development business and Sun Streams 2 sales. And finally, capital expenditures were $90 million in the first quarter compared to $89 million in the prior quarter. Continuing on Slide 9, I'll next discuss 2021 guidance. Our Q1 earnings provided positive stock for the year. But we're leaving our EPS guidance unchanged for time being largely due to the following reasons. Firstly, also the time of prior earnings call we anticipated the gain on sale of our US project development in North American O&M businesses of $135 million to $150 million. At closing, we recognized a pretax gain of $151 million. Secondly, the fifth round of our second Series 6 factory in Malaysia. The factory quickly exited its ramp period. For the result, we anticipated reduction in our full year ramp expense which we anticipate will be partially offset by an increase in production start-up expense. Thirdly, we also have strategies in place to mitigate the potential negative effects of higher cost including sales rate and aluminum. The functions about these costs and our mitigating strategies are impacted in our 2021 guidance. Finally, the February earnings call, we anticipated sales trade will reduce our full year 2021 module segment gross margin by 7 to 8 percentage points whilst we continue to mitigate the effect of high shipping through improved efficiency, expansion while distribution network and implement of Series 6 plus. We currently anticipate sales reg will reduce our 2021 module gross margin by 7.5 to 8.5 percentage points, 50 basis points increase from the prior earnings call. Also whilst the hedge we put in place mitigated some of the effect of high commodity price, uncertainty relating to future cost is considered in our low end of our guidance range. Whilst we're facing near term cost challenges predominantly related to sales trade. Our confidence related to our previously disclosed mid-term, cost per watt reduction roadmap remains unchanged. These factors in mind. We're updating our 2021 guidance as follows; our module segment revenue guidance of $2.45 to $2.55 billion is unchanged. Our updated net sales guidance is $2.85 billion to $3.025 billion which reflects $25 million increase to high end of systems revenue guidance. Our module segment gross margin guidance $565 million, $615 million which represents a $15 million and $10 million reduction respectively to the low and high end of our previous guidance range. This revision reflects our current expectations related to commodity and sales rate cost which is partially offset by reduction in ramp related expense. Note, the results of these cost we anticipate our Q4 module segment gross margin with approximately 25%. This anticipate module segment gross margin includes $10 million of underutilization expenses related to factory upgrades which is expected to reduce module segment gross margin by approximately 2%. We also anticipate approximately 60% of our module segment gross revenue for the year will be recognized in the second half of the year. Our updated system segment gross margin guidance with $130 million to $160 million which reflects $10 million increase to the high end of the range due to the potential recovery at system cost. A portion of which we've already received. We anticipate the majority of our remaining full year systems segment revenue and gross margin will be recognized in the second half of the year. Otherwise, total gross margin is $695 million to $757 million which reflects the $15 million decrease to the low end of the range. SG&A and R&D expenses have been lowered by $5 million to wide range to $265 million to $275 million. Production startup expenses increased by $5 million and as a result operating expense guidance range of $285 million to $300 million is unchanged. Operating income guidance $535 million to $640 million in unchanged. It includes anticipated depreciation amortization of $263 million, share based compensation of $21 million, ramp underutilization of production startup expense totaling $61 million to $66 million. And a gain on the sale of our US project development in North American O&M businesses $151 million. Our tax guidance of $100 million to $120 million is unchanged and includes approximately $34 million of expense related to the sale of our US project development and North American O&M businesses. Earnings per share guidance $4.05 to $4.75 remains unchanged and our net cash, capital expenditures and shipments guidance also remain unchanged. Turning to Slide 10, I'll summarize key messages for call today. Financial sectors, with a strong Q1 EPS and $1.96, module segment gross margin in line with our Q1 guidance and reiterated our 2021 EPS guidance range of $4.05 and $4.75 per share. Operating, second Series 6 factory exited its ramp period and our nameplate manufacturing capacity increased to 7.9 gigawatts. Additionally as a result of continued execution we're on track to achieve our target 11% cost per watt produced reduction between the end of fourth quarter of 2020 and 2021. And finally, Series 6 demand has been robust with 4.8 gigawatts year-to-date net bookings which includes 2.9 gigawatts since the previous earnings calls. And with that, we conclude our prepared remarks and open the call for questions.

[Operator Instructions] your first question is from Philip Shen with ROTH Capital.

The first one is on pricing. I know Mark, you gave some detail on the decrease of 11% year-over-year in 2022 with the bookings you have. But crystalline silicon pricing is up meaningfully, our checks are for pricing at $0.35 to $0.38 level at the spot market and so how is that impacting your discussions, how much of that can you benefit from? And then just my second question here as it relates to capacity. Was wondering if you could provide a little bit more color India was on the roadmap for a bit, with COVID problems there I can imagine, India is off the table. So what variable are you using and thinking about as you consider locking in as expansion in a decision? Do you need more clarity from the Biden Administration and I know it's going to come on in Q2? But some initial color there will be fantastic. Thanks.

Phil, first on the pricing environment. Clearly, we've seen pricing from up - as we look across horizon whether it's not a lot of volume for occurring. But at the extent we had US available supply and current use. You'll see from our pricing. But your eventual look across the horizon and to 2022, 2023 and 2024. The one limiting factor that you know relative to the number that you referenced is that, there's - in the US in particular the projects that people have bid are under significant pressure really from all dimensions. And ultimately it all come down, an affordability, although there's going to be a number of these project that just not going to happen because when you look at the general cost pressures that they're seeing, just commodity cost pressures, right? When steel going up, aluminum going up, copper going up. You're seeing pretty much the entire balance system labor cost under pressure as well. It's pretty strange in all these projects and one of things we got to be mindful of it. We price across the horizon. It still has to fundamentally work within a customers pro forma, their financials have to work. And so to, to try to go out and capture the highest potential price point. I'm not sure it's going to serve us the best when it comes to ensuring the viability of the project. And so we've been trying to work with very capable well financed counterparties and having high certainty and quality of the execution of the projects which form our views around certainty of execution, we need to make sure that the economics on pricing works. The other thing I would say that falls into the equation is the, our confidence around our cost reduction roadmap. So as to look to our cost reduction roadmap we are very happy with where we are and the opportunities that still in front of us to drive cost down meaningfully lower than where it is right now. The one piece of the cost structure that is not as robust inability to control, they were highlighting right now a sales trade. But as we're looking forward into these new contracts. We're putting variable structures and there around sales trade such that we're not carrying that risk profile. The customer is going to share in that and to the extent the sales trade environment phase similar to where it's right now then there's pass through at that cost with slightly different dynamic than what we had historically. So those variables all factor in how we price it. There's an opportunistic moment right now. We look to ourselves as establishing deep partnership in relationships with our own customers. Customers that we now have capabilities and execute and try to create a solution that works for both parties in that regard. As it relates to the capacity expansion, look India is going through horrible time right now. I mean you see cases there closes 400,000 a day I mean which is horrific but I don't want you to think that because of that, we're confident that with the help India will continue to receive from international partners and allies like United States and others. This will be a difficult challenge. We'll have to get through but they'll get through it. And we're still evaluating India very significantly as a growth market for us. We look at the technology and competitiveness of the technology in India, it's ideally suited. When you have CdTe cell technology especially with CuRe and improved long-term degradation rate, hot, humid climate. Mainly fixed tilt structures, mainly model facial therefore for the true value uplift we get from the CuRe against monofacial realizes itself and then higher ASPs. The fact that the duties that have been imposed right now for imports, makes even more critical for us and say how we address that market, even the events are the approved list of module manufacturers is another constraints to access in either markets. India is a very important market for us. US we're very well positioned to - we've got - already when we stayed in Ohio, we had an option on, actually purchased additional land that would accommodate a large facility. The current savings and commitments that we're seeing from the administration positive. But unfortunately slow back in some regards so that is little frustrating. But generally think pretty good undertones for enabling our work past of the year, our most important market in. As we highlighted in the call sale trade being closed to market. You can take a penny or so, a cost up from sales trade, right to drive across down even more competitive. So that's how important. The only thing I would say to make sure it's clear so is that, the other thing they were doing is that, the next factory or factories. Will be larger than anything we have today and they will be our most advanced and competitively positioned product and, in some case, we're also going to further enhance automation and through the factory process. So it's going to be best product, highest performing, lowest cost that will be said function and proven from where we're right and so that's taking a little bit more time to validating, solidifying all that, that worked to get comfortable with that. We've been spending a lot of time. I wanted to make it clear in the call that we will be making a final decision by the July earnings because I know it's something we continue get asked questions around. We're pretty advanced in our evaluation. To extent we make the decision to move forward and if you hit all the criteria's that we highlighted, then we'll make sure we make that announcement in July if we chose not to do it. Then we'll provide the direction that we're going to move forward in lieu of that. So yes, lot of good work being done right now. But we want to make sure whatever we do, is that we really create again competitively, its damage, disruptive product from where we're right now.

So just one thing I'll add on the ASPs, is that for the deals we're booking right now these are deals that we've likely been in discussion with customers on calls, many months and I think the phenomenon you're seeing around crystalline silicon is pricing come relatively recently, whilst I'm sure many of our competitors will have taken the opportunity to reneged on pricing that was perhaps put out as [indiscernible] as Mark said, we look for long-term relationships - customers we chose not to do that. So we've held pricing despite what we're seeing in the market. I just wanted to make that point also.

Your next question is from Michael Weinstein of Credit Suisse Securities.

Do you have any potential plans to produce a residential product getting continuous efficiency improvements? I was thinking perhaps the tandem junction product you mentioned.

Yes, that product will be ideally suited for that type of application. So it's going to be highest efficiency, best energy profile and that would be - we would target segments as a market that will pay a premium for the efficiency and residential would be primary market for that. And so as further along and commercializing that and scaling up that technology. Yes, I think it expands in a market segment that today we historically not sold into. But there'll be other high efficiency markets that will love to in terms of land constraint and other challenges that you have to deal with where our efficiency product would be advantageous. But yes, residential would be one.

That's great. Just a follow-up on the call couple questions you were asked. You answered about optionality and pricing. How about tariffs? How do you deal with the possibility there might be additional tariffs? Or tariffs might be going away in your pricing going forward like out for 2022, 2023, 2024?

I've kind of alluded to this for a while. I mean we haven't really been - if the issue is tariffs on competition or tariffs on owned product. I mean assume, tariffs that were imposed on crystalline silicon, [indiscernible]. Unfortunately after the first 16 months [indiscernible] being implemented the tariff went away because the bifacial exemption and yes and that's been reinstated, I guess late last year. But most of what we had already sold really through from whenever it was June 2019 until now. It hasn't really been influenced by tariff, the 201 tariffs because of the bifacial exemption and product coming in from Southeast Asia into the US market without having to pay tariffs. The fact that it was then re-imposed late last year really didn't change much for us either because most of our 21 [ph] filing was already sold through at that point. We try to continue to manage and develop relationships and partnerships and even with the 201 were first imposed. It wasn't like we took that as an opportunity to gouge our customers. It doesn't service any good. We're still in the early innings of this industry and the relationships that we establish and the trust that we create with our partners will determine each of our success in over the next decades to come. So yes, they can influential. We do believe that they're important. But we also do believe that there's a need to have additional US manufacturing capabilities and tariffs can help enable that. But it's not something we feel that we would try to take advantage of. As it relates to, if our product were to be - a product that we import from Southeast Asia manufacture somehow would be subject to tariffs and we have provisions within our contracts to try to address those types of events and circumstances if they were to occur. My assumption from your question was just really more related to tariffs relative to our crystalline silicon competitors. It informs the thought around pricing. But we would never want to take it as an opportunity to gouge our customers.

Your next question is from J.B. Lowe with Citi.

I just wanted to circle back on the project economics comment that you made, Mark. Because we're seeing kind of the same commentary from the crystalline silicon guys that. They would like to push pricing higher given all their cost issues on the polysilicon side. But they're getting push back from customers who - the economics are pretty thin on their front. So they're not having success pushing through prices increases. So there's that. but I'm also wondering, is there anything in your backlog that you think is more at risk than anything else just given that maybe some of the products in your backlog have some of those thin margins? Just wondering what you're thinking about that.

Look again when we price those modules, they all aligned up to pro forma financials that would work for the end customers. Now to the extent that they have a price pressures that they're going to be seeing across their supply chain, not a cost increases and things like that yet. It potentially is that drive, thinner margins on their part. It could happen. But as we said before our pricing for our contracts our firm obligations would security behind them. We have not seen that event happening relative to issue our customers are incurring or there's any discussion in that regard. What we try to do, we try to find customers that they value the certainty of working with First Solar and also working with counterparties that we can trust as well and honoring against their commitment and we've been pretty successful in doing that. When things get evolved differently. But what I will say right now is, when you try to think through a balanced relationship and trying to ensure certainty that certainty has to go both ways, [indiscernible] gets our commitments and our customers to accept their commitment they made as well when they contract you for the modules.

Your next question is from Moses Sutton of Barclays.

Of the 2.9 booked, 2.9 gigawatts since last call. Would you include the recently signed Sun Streams projects? How much of that 2.9 originated from pure third-party module pipeline versus something that was originally in systems?

So with the Sun Streams, the Sun Streams module volume when you say systems, was not part of the systems sales. I want to make sure that clear, right. So that was a module.

I mean part of the systems pipeline originally.

Were really Sun Streams 3, 4 and 5 was never part of the systems pipeline. 3 got terminated, right? But most of that volume was not part of the systems pipeline. But in terms of and Alex you may know this one, in terms of the module volume that when we sold [indiscernible] how much of that was included in the 2.9?

About three quarters of gig.

744.

About three quarters of a gigawatt.

So the 29744 and Moses, I know it's not part of the actual number. But I also want to make sure, since you asked the question. The other gigawatt that we just booked today 3.9 was not at all tied to the systems business. So if you look at it, we've got 3.9 gigawatts that were booked since the last earnings call and about 707 megawatts would have been tied into business [ph].

Got it. And then do you think your panel weight against the freight cost per watt are the same first currency refix before the new initiatives then for an average or common mono-PERC, probably competitor. We noticed the virgin claims made by some buyers.

Moses, can you repeat the question one more time? The weight I got that, make sure I understand your question.

So really freight cost per watt, your panel versus an average mono-PERC. I know they're all different. Would you say they compare or higher freight cost typically?

What we're seeing right now because of large form factors, how we're seeing modules now that are like three square meters and alike, they're even shipping them vertically. Those cost of sales freight for those products are going to be much higher than where we're right now. So if you looked at where we would have been again for the - let's say the two-meter square form factor which was the standard before now there's variance all over the place. We would have been slightly higher and mainly because of we wait out on a container. So they would actually be able to get more modules onto a container than we would and they had a slightly higher efficiency. But now if you go to bifacial glass, larger form factor. What's actually happening is they're creating a disadvantage on a freight cost for themselves.

Your next question is from Brian Lee with Goldman Sachs.

I had two, one on systems and just one on kind of the cost reduction path. First on the systems, Mark you said there is - there's $130, $160 million in gross profit this year in the guide. Just wondering after all the divestiture here recently how much of any there's left pretty monetized in 2022 and then if there's any Japan in the near to medium term, you're kind of you phrased it as like three to five-year opportunity. Just wondering if there's anything in the next one to two years there. And then on the cost reduction side, you mentioned 11% reduction in ASPs for 2022 bookings at the moment. Cost reductions have been at that level or below it seems like so just wondering, is there a scenario in which you kind of start to accelerate that and maintain a stable gross margin on modules given, you're starting already 11% in the whole if you will on the pricing side adding into next year. Thanks guys.

On the systems side, how we guided to the 132, 160 num [ph] fee. There's a valid $80 million recognized in Q1, $60 million to the midpoint from rest of the year. Most of that comes from Japan. You're going to see that happen in the second half of the year. And then if you look through the on lag, you can think about there being a little bit of Japan, here it's potentially more sort of out. But you're going to see Japan coming over the next three to five years. So you'll see an impact every year out of there. On the cost side, on cost per watt. I think we talked about 11% cost per watt reduction on produced basis for the year. So we see a production number that's matching. But we see in terms of decline on ASP and obviously that's on a percentage basis on lower number. You're going to have a little bit gross margin squeeze if you have the same reduction from an ASP in a cost per watt size. The other thing to bear in mind and mark my words, totaling more in the cost, rather stay on the OpEx side. We talk a lot about gross margin. I think it's important that we match that gross margin or continue to beat it. But one of the benefits of scale and one of the things we're talking about in terms of expansion and looking at manufacturing capacity is the ability to leverage fixed cost base as well. So we can even if we just maintain a matching number in terms of cost reduction relative to where the revenue decreases are. We can actually see a benefit coming through on the operating cost side. We've done a pretty good job there. I think if you look back over the last decade or so bringing that sell for number down from 20 or so 10 years ago, maybe $0.10 a watt and five years ago. This year if you look at, it will be somewhere around three and half cents a watt and as we go forward given that operating cost structure is largely fixed. It's managed and fixed. You can see as go over past year, it's going to come down and so you can get either maintaining operating margins or poor expansion, the operating margin levels. There's lot of work still to do it at the gross margin level. But just want to make sure that comment is not missed. We look it at also further down to operating margin level.

The other thing I would say Brian is that, there are lot of things that are in the mix now that will help continue to drive down the cost per watt. I mean part of this year is you got to remember we're taking a little bit of headwind around the impact of planned downtime as we made a number of upgrades before CuRe in particular. So that's costing us about half penny of watt or so that for the year. Now for into next year, we don't have as significant upgrades as we currently envision relative to the technology roadmap that we need to rollout that would have as significant of a headwind given the downtime we had to take for this year. So that has normalized itself. We also have the efficiency continues to improve from this point through the end and we have an exit from 465 watt and then we'll exit 2022. I think its 480 watt or something like that as well. What we previously indicated. So that helps drive. But then we've got a number of other billing material initiatives that will drive improvement and one of them just even on our last cost because there's different tiered pricing as we drive more volume across our contracts for glass. We hit different tiers would actually drive down pricing. So there's number, we used that bridge before. When you look at the throughput lever, where there's more throughput to go. There's more efficiency benefit and then we have the watt, the improvement that we'll make and we don't have as much planned downtime at least as we currently envision it. So those who all will help us manage and cross that horizon for 2022.

And ladies and gentlemen, this concludes today's conference call. You may now disconnect.