Good afternoon, everyone. And welcome to First Solar’s First Quarter 2022 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. Mitch, you may begin.

Thank you. Good afternoon everyone and thanks for joining us. Today, the company issued a press release announcing its first quarter 2022 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. 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. To begin, while our $0.41 loss per share results came in within our internal expectation for the quarter. It is reflective of what is projected to be a challenging 2022 from an earning standpoint. Due to the factors that we highlighted during our call in March, in which we’ll address further today. That said, we are encouraged by our strong bookings progress. As we booked 11.9 gigawatt in less than 60 days since the prior earnings call, bringing our year-to-date bookings totaled 16.7 gigawatts. Further setting ourselves up for 2023 and beyond, an important feature of many of these recent bookings as previously discussed is that they include adjusters to potentially increase ASPs based on the realization of our technology roadmap, achievements, and sales risk sharing mitigation. In addition, we have begun to employ a similar ASP adjustment mechanism related to aluminum exposure. Later in the call, we will provide an indicative view of how these pricing adjustments could result in an ASP potentially significantly greater than the baseline reflected at the time of our bookings. In short, while these contracts have a baseline ASP that is reflective of the value of the product, we are manufacturing today. That ASP has the potential to increase, to capture the value of our product or technology enhancements or to offset sales rate and aluminum margin erosion risk. We believe this agile approach to contracting will continue to attract customers looking for long-term certainty and value. The combination of reliable competitive pricing and supply certainty, lower political and compliance risks and access to our best available technology is a tremendous value driver for sophisticated customers who may be fatigued with a volatility uncertainty. That can be experienced transacting in this industry,…

Thanks, Mark. Starting on Slide 8, I’ll cover the income statement highlights for the first quarter. Net sales in Q1 were $367 million, a decrease of $540 million compared to the prior quarter. Decrease in net sales was primarily driven by a lower module volumes sold reflecting seasonality and increased transit times and lower average module ASPs as well as a decrease in revenue from our residual business operations following a sale of free projects in Japan in Q4 of 2021. On a straight-line basis, the module segment revenue in Q1 was $355 million compared to $690 million the prior quarter. Gross margin was 3% in Q1 compared to 27% in Q4 of 2021. Q1 module segment gross margin was 3% down from 21% in Q4 of 2021 and was negatively impacted by $4 million or 1 percentage point of gross margin of under utilization expense stemming from planned down time for throughput and technology upgrades. Additionally sales freight warranty expense included in our cost of sales reduced module segment gross margin by 14 percentage points in Q1 compared to 13 percentage points in Q4 of last year. SG&A and R&D expenses totaled $64 million in the first quarter, a decrease of approximately $4 million compared to the prior quarter, primarily driven by lower R&D testing expense. Production startup, which is included in operating expenses totaled $7 million in the first quarter, an increase of $2 million compared to the prior quarter, driven by increased startup cost associated with our third Perrysburg factory. In Q1 we closed sales of certain international O&M contracts in Chile and recorded a gain on the sale of the business of $2 million. Q1 operating loss was $58 million, which includes depreciation and amortization of $65 million, under utilization and production startup expense totaling $11…

Thank you, sir. [Operator Instructions] Your first question comes from Philip Shen with ROTH Capital Partners. Please go ahead.

Thanks for taking my questions and thanks for sharing all the detail on the contract structure. I have a few on pricing in general. But you had mentioned Mark the $0.03 per watt or $300 million of potential ASP upside for 2023, I think on the Q4 call. So I’d like to explore how much more upside there might be beyond this. For example, which adder is not included in your $0.03 per watt estimate? I believe it’s Series 7 bifacial and origin adders. Can you talk through how much volume in terms of megawatts we could see for each of these in 2023 and what kind of contribute in terms of cents per watt could each represent? And then beyond this, can you talk through how the anti-circumvention chaos may be incrementally supporting even higher base pricing for your base ASP for incremental contracts? And then finally this is more of a housekeeping question for pricing. Our quick calculation for the Q1 ASP is roughly $0.021 a watt that compares with I think Q4 of closer to $0.31 a watts. So that’s a big change. Can you help us understand what’s missing in our calculation, meaning typically your megawatts shipped maybe a little bit different from your megawatts recognized in revenue. So ultimately what was the pricing or ASP in Q1 and what do you expect in Q2 and three? Thanks guys.

All right. So Phil, let me make sure I understand your first question. And actually, if you look at that contracting slide that we have in the presentation indicative contracting, there’s a dotted box that it’s around, I think four different components. One is the temperature coefficient the long-term degradation rate, bifaciality and Series 7, I think is the four that it’s around. And if you look down at the bottom, there’s a note down there that indicates that that is reflected in the 10-Q disclosure. So that three – up to $300 million number that we reference is taking the value of those four items into consideration. You referenced a few things around, well, what’s not included. So yes, there are certain things that are not included such as domestic content. So if we source from our facility in Ohio, whether existing facility or new facility there are some provisions in our contracts that would say there’s a premium for U.S. made content and that’s even independent of whether or not it even gets captured in a U.S. content ITC. So we highlight at the bottom of the slide that another thing that we’ve done with our contracts is that it’s the extent that there becomes a U.S. content criteria that is used for the ITC. We’ve contracted that now to provide upside. So there’s pretty significant value uplift for that 10 percentage point, which is what’s currently being considered for domestic content for ITC. But beyond that there’s also a domestic source content that some of our customers just would rather have U.S. made and domestic source product. And to the extent they do, there’s a premium that we are asking for in order to reserve that type of allocation from that factory. As it relates to the…

Yes. So on the ASP side, the shipped volume was about 1.7, on a sold basis it was more like 1.3. So if you do the math on 1.3 against about 303, I think 55 of module revenue get somewhere around $0.27 and change on an ASP basis. And what you’re seeing there is so, volume on a sold basis is down partly there’s some seasonality, right? Typically Q1 is a lower down sold quarter for us. It ramps through the year. You’ve got a little bit of impact there, so we had more DDP versus CIP terms in Q1 relative to last quarter. And then you’ve got transit time as Mark said in prepared remarks. We’re still seeing times into the U.S. being a record highs up at over 130 days in Q1. So you’ve got those impacts coming through. And on the gross margin side, there’s a little bit of a mix shift as well, which is impacting us. So you’ve got actually got a bit more carry per volume on the sold volume coming through in the gross margin. It’s a little bit offset as you get some benefit in the sales rate there, which is why, if you look at sales rate on a gross margin percentage point basis in Q1, it was down at 14 points, so the full year expectation of the guide 18% to 20%. So you’ve got a little bit offset there, some higher cost, co-product a little bit of benefit sales rate coming through, but that’s why you’ve got this lower sold volume and the impact you’re seeing the gross margin.

Yes. But, I think Phil, when you look – maybe to answer your broader question as well, is that we’re seeing strong demand. We feel like we’re getting attractive pricing in the market. We’re continuing to drive cost down as Alex as indicated, even the backdrop of all the challenges we’re dealing with, we still anticipate a 4%, 6% cost per watt reduction. And then as we highlighted before Series 7, when introduced will be the lowest cost products in our fleet. So that’s even a lower cost profile than we have today. So the combination of all those, you couple that with the contribution margin flow through from incremental growth, we’re pretty excited about 2023 and beyond, and the opportunities that we’re positioned for right now and continuing to look to grow beyond what we already have committed to with the strong backlog that we have right now.

Great. Thanks guys.

Your next question comes from the line of Ben Kallo with Baird. Please go ahead.

Thank you, guys. Maybe just to kind of take a step back, going back to when you had module gross margin targets, I think greater than 25% way back. If I put all this stuff together in that Slide 5 and technology advancements, how does that shape up versus that original outlook? And then I have a follow up.

Yes. So Ben, I think if you just look at – I mean, right now, when you pull out the effects of sales rate on the quarter, I think we’re in the high teen, 17%, 18%, something like that from a gross margin without the impact of sales rate. And if you – if you then include the technology adjusters, which is another 10 percentage points on top of that, you’re going to get to a gross margin that’s going to be net 25% or north of that 25% number that you reference. So that’s one way to look at. The other way to look at it, Ben, if we had the commodity adjusters in this current quarter, we would’ve added 10 percentage points to where we are right now, including the impact of sales rate from the commodity standpoint. And we also had a very low shipment quarter. I mean, this is one of our lowest shipment quarters that we’ve had in a long time, as Alex indicated 1.3, sold quarters. 1.3 gigawatts is one of the lowest quarters that we’ve had. So that’s obviously drawing kind of weight against some of our fixed costs in our production facilities that drove to a lower gross margin. You’ll see that being leveraged as we grow sales volume as we expand throughout the year, we’ll be averaging close to around 2.5 or 2.6 gigawatts a quarter, so essentially double where we are right now on a sold basis to hit our revenue targets for the year.

Yes. I think if you look at the backlog that we give in the Q, you’ll see the number tomorrow, you’re going to still see $0.27 ASPs. We had a very large booking quarter, so you’re seeing ASPs relatively flat going out of years. And as we talked about on the call, important to understand that’s a baseline number. And we talked about there being up to $0.03 of technology out, essentially another $0.03 of sales freight is relative to where we are today. And in that same timeframe, you will have cost reduction as well, ongoing. So you’re seeing ASPs flats to rising over time, cost reduction coming down, and then you add volume on top of that.

Great. And then congrats on the bookings. How do you think about with the backdrop that you outlined of all the legislative and regulatory positives potentially for you? How do you think about the expanding capacity as you sign up contracts? And thank you very much.

Yes. So look what we’ve always said that we want demand to drive supply for us, right? And when you look at the bookings momentum, I mean, if you look at right now, we’ve got 36 gigawatts in our pipeline. If you go back last year at this time, we were about 15 gigawatts. We’ve added 21 gigawatts to the backlog within a 12 month period. And the momentum, if you look at the pipeline, still is 50 gigawatts, 55 gigawatts of a total pipeline. And as I alluded to, I can easily see over the next several quarters capturing multi-gigawatts volume in India, which we’ve been very patient in terms of taking that volume at this point in time to ensure we get optimal pricing and what we want to capture in India. I think we’re in a good spot there right now. So we’re going to – I wouldn’t be surprised by the middle of this year that we’re largely sold out through 2025 – 2024, excuse me. We’ve got a few more gigawatts. We got a knockout India, which I think we could be in a good position as well as some more volume here in the U.S. of a few gigawatts, we could be in a good position of having 2024 sold out and even a more meaningful position into 2025. All that sort of gives us the backdrop and the policy support and the environments that we’re seeing in our three primary markets that we want to stay focused on, which is India, the U.S. and Europe, I think there’s some pretty strong inflection points right now for us on a policy standpoint and markets that are compelling for us. And one of the things we said was what we continue to want to do with our capacity expansion is to be close to end markets, right, to get out from underneath, the ocean freight exposure and the challenges that they can create and the headwind on cost. And so I think thinking through those are three primary markets with robust recurring demand could be pretty attractive as we think about capacity expansion. But overall, I think the building blocks are coming together pretty nicely as we think through that.

Ben, one thing I’ll add. Our technology is being unique and different so is our toolset and the manufacturing required for that. So we’ve been engaging with suppliers to ensure that we have line of sight on critical path tools for further expansion. So we continue to have those discussions with our suppliers.

Your next question comes from the line of Maheep Mandloi with Credit Suisse. Please go ahead.

Hey, thanks for taking the questions. Through customers revised pricing structure. Can you just provide some more visibility around how many contracts and the backlog are under this new structure with reference to the slide in today’s tech or is it fair to assume only the booking since the Q4 call have this new structure and also just wanted to get a thoughts on the cadence we should expect for 2022 in terms of shipments or revenue recognition. Thanks.

So if you look at on a sales freight, I’ll just go through the various adjusters. So we’ve got sales freight adjuster, and I believe that’s like about a little bit north of 23 gigawatts so 23 gigawatts out of the 36 or so. The aluminum adjusters about 11 gigawatts out of the, again, we just started contracting that way since the really last earnings call, which was March 1. So about 11 gigawatt under the aluminum, under the technology adjusters you’re going to see in the queue and we announce it effectively, it’s 10 gigawatts that we believe will be able to capture the number that we have contracted that way is higher. I think the number could be closer to around 16 gigawatt or so, but what we identify in the queue is it ties up into our roadmap of our bifacial implementation rollout, our Series 7, our Temco and delegation improvement profile. So we kind of model that and what the replication and its reach of those technology initiatives. And then how does that roll out relative to what our current delivery schedules look like. But if those push out, for example, if we hold our technology roadmap and the actual schedule for some of those push out, then there’s potentially upside that we can capture beyond just what’s been identified. So that that’s kind of the profile of what’s in the backlog. What I would just continue to say is that we are – everything we’re contracting going forward is largely under this construct, but for if somebody wants to pay a higher price, right. So in some cases, customers are going to say, look, I’ll just pay for all in everything now and not worry about the adjusters, because it may be easier to get…

Yes, as it relates to the cadence of shipping and RevRec, there’s a lot of variability given, as we mentioned, the transit times being higher, lot of our uncertainty around sales freight, obviously we have more visibility to our U.S. transit. And that helps, but I would say you’re going to definitely see a backend profile so you can expect to see a little more, probably closer to two-thirds versus half of shift volume and sold volume being recognized at the second half of the year versus first. But again, a caution there’s a lot of uncertainty around that number, just given what we’re seeing in the shipping transition, shipping market.

Your next question comes from the line of Joseph Osha with Guggenheim. Please go ahead.

Hello. Thank you. Just for the record, I want to state I’m completely in agreement with your position on the Chinese supply chain. Just want to state that upfront. I’ve got two questions. First, just wondering how your EPC partners are doing in terms outside of your product area, cables, labor, racking all that, what you’re hearing from them in terms of the ability to get projects completed. And then my other question relates to your plans for expansion, you talked about working with other parties, but you’ve maintained a very quick clean balance sheet. I’m wondering with this much high quality backlog, whether we might see you maybe potentially look at levering the balance sheet in order to continue to drive the manufacturing expansion. Thank you.

Yes, I will take the first one that obviously the expansion and leverage. Like nobody’s immune from the challenges in the supply chain right now. And because – it’s one thing on the model side, but we’re also seeing it on our new tool sets right. Of trying to identify and make sure that all the critical components that go into the tool sets that are needed are available throughout the supply chain. And we’ve been working very closely with our tool vendors to make that happen or to ensure that happens, good availability as possible. And it’s challenge and it’s no different than with our EPC partners and the challenges that that they’re dealing with. And the reality, in some cases it can be something very small and would be perceived as insignificant, but it could be a major constraint, a connector or whatever it may be could become a constraint to the overall project. Everyone’s trying to work around that in some cases. And a lot of cases you’re even seeing a lot of people installing the structures as quick as possible, even though the panels aren’t there, because they know they’re going to run other long lead time constraints and challenges that they’re working through. But yes, they’re dealing with the same supply chain constraints that all of us are at this point in time. I really don’t see anyone being immune.

Yes. Because it relates to expansion. I would say right now, by the end of the year, we’ll spend about $1 billion of the roughly $1.4 billion associated with the two new Series 7 plants and that lines up with our year end forecasted net cash balance about $1.2 billion at the midpoint of guidance. If you think about beyond that, the next year we have another 300 to 400 or so of CapEx associated with those plants, but you’re also going to have the first production coming from those plants. Plus you’ve got all the Series 6 products up and running, so the business should be cash generative next year. You’re right. We haven’t levered up the balance sheet. We do have the ability to potentially lever up with some debt against the India facilities. So we’ve been in discussions and I think we’ve disclosed the potential for leverage, but we sit at the corporate level, which would really be linked to the expansion in India actually around 500 million or so of capital capacity there pretty attractive terms. Going beyond that, I would say that we could add an incremental factory without stressing the balance sheet. Again, that 1.2, 1.3 is net. So the gross number is higher will be cash generative next year. And as we’ve come out of the systems business the working capital and volatility around the business decreases. Now beyond that, if we were to see opportunity to add significantly more capacity in the near term, as the potential for needing more capital, I think worry to do that right now our read is across debt converted equity to markets are pretty open receptive to capital. I’d also add that if you just look at the timeframe in which we would add capacity, even if we were to make a decision today, it’s going to be 24 months or so before we’ll be able to bring that capacity online. And the spend timing around the land, the building, the equipment is going to push out such that we have more time for the business generate cash as well. So I think right now as we stand we’re in a pretty good position, I don’t see us needing to access the capital markets, but if we were to do – the desire to do so, I believe those are open to us today.

Our final question will come from Brian Lee with Goldman Sachs. Please go ahead.

Hey guys. Good afternoon. Thanks for taking the questions. A lot of moving parts here around some of the contractual adders. So I just want to make sure I’m not misconstruing it. When you said earlier that on that Slide 4 or 5 you’ve got 36 gigawatts of module shipments teed up for the next several years. And then you have the 12 gigawatt that you booked since the last call. What – I think you made a comment that the contract adders or the commodity adders and/or the technology adders were not applicable for certain percentage of those, is that – was I right in hearing that, that the 12 gigawatts that you booked since the last call could potentially have the three to six sets of adders, whereas the other 24 gigawatt, because those were sort of older contracts do not. And then just a quick question on the equipment vendors, anything you can elaborate there on in terms of lead times and where you might be seeing some of the most bottlenecks around some of your key equipment and tool sets needed for a capacity expansion. Thanks guys.

Yes. So let me try to do this again. So let’s just start with the 11.9 gigawatts was booked after the quarter end so April 1 to today. All – so 11.1 of that would have the aluminum adjuster in it. Okay. So say 11 of the 12. Okay. All that volume would have one or two things on sales freight, either a sales freight adjuster, and I’m talking just the 12 gigawatt or in some cases in this case, in this court in particular, there’s a significant portion of that 12 gigawatts where a customer says, I’ll take the shipping responsibility on my own. So my obligation is to just deliver it to the factory outside the factory door, and then they take it from there. So I have no shipping risk on that. So think of it as it’s either one or two ways it’s protected from shipping, I’ve got an adjustment to shipping it’s the customer if we exceed the cost that’s in the baseline, which generally is around $0.025 or the customer picks it up and therefore my cost is going down at least $0.025. So those are the two. So you got aluminum 11, you got all of it with one form of sales trade protection, either an adjuster to the ASP or the customer’s picking up. And I don’t have to worry about any of the cost at all. Beyond that, so that’s 12 out of the total gigawatts were before year end or after quarter end, excuse me, we have an aggregate in the 20 million and the 36 million. We have 23 gigawatts that has sales freight protection, okay. So 23 of the 36 has sales freight. Okay. 11 of it has aluminum. On the technology adjusters of the 36, there is about 16 gigawatts that has technology adjuster, but only about 10 gigawatts are included in that disclosure that you’re going to see in the queue tomorrow, because that’s the portion of the 16 that we expect to monetize or to realize. Now all of the new stuff, it’s highly probable, but the new stuff is going to be captured, right. But that 12 gigwatt, it’s not in that disclosure. It’s got to put that in there as well. That disclosure that’s going to see – you’re going to see tomorrow does not include that 12 gigawatts because it was after quarter end. So you could take this 10 gigawatts that we just said that’s in the quarter. And you could add the vast majority of that 12 gigawatts that happen after quarter end and say, yes, that will have a technology adjuster as well. But I just want to make sure it’s clear when you look at what’s in the queue tomorrow, you will not see this additional 12 gigawatts. You won’t see it until the actual filing happens for next quarter. Is that clear, Brian? I just want to make sure.

For delineating all that, that does clarify it a lot.

Okay. And then as it relates to the tools and what our challenge are, we look – some of our challenges are chips as well, right. So there’s quite a bit of metrology and data and everything else that we capture through our manufacturing process. So a lot of it’s chip dependency. Now we’ve worked through that. And I actually, as of right now, the last word I got from my team yesterday, I think we’ve resolved a good portion of that, which is good. Now we get into other things like glass, right. So in our ovens, we actually have chambers that you could look down into, right. Because if something happens, in some cases, our ovens could be 75 yards long so we have to have their segment in such a way that you also have these chambers that you look down into, and if something goes wrong inside, or you got to fix or repair, you would then access them from above. And generally there’s a glass opening lid effectively. And we’re struggling with one of our vendors around getting the glass. Now it’s not going to be a constrained. We believe we can still get the tools in. And then when the glass comes, it’s something we can install on site, but won’t be provided upon the initial shipment. So, there’s many different issues, the teams doing a phenomenal job, they’re working each one of these with each one of our tool vendors, bomb item by bomb item for our tool vendors and making sure that they have them and that we can maintain schedules. And they’re thinking through workarounds, but it’s a challenging environment as you can anticipate around supply chain.

All right. Thanks guys.

And that ends the question-and-answers session and today’s conference call. Everyone, thank you for participating, you may now disconnect.