Good afternoon, everyone, and welcome to First Solar's Third Quarter 2022 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 Richard Romero from First Solar Investor Relations. Richard, you may begin.

Good afternoon, and thank you for joining us. Today, the company issued a press release announcing its third 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 provide a business and policy update. Alex will discuss our financial results for the quarter and provide updated guidance. Following their remarks, we will open the call for questions. Please note, this call will include forward-looking statements that involve risks and uncertainties and that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in today's press release and presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?

Thank you, Richard. Good afternoon, and thank you for joining us today. Earlier this afternoon, we announced net sales of $629 million and a net loss per diluted share of $0.46 for the third quarter of 2022. As noted in our original guidance for the year, 2022 was projected to be challenging from an earnings standpoint, but we continue to maintain an unwavering focus on the future, setting the stage for long-term growth and profitability. Beginning on Slide 3. Our strong bookings momentum has continued into the second half of the year, with 16.6 gigawatts of new bookings since our last earnings call, which have a base ASP of $0.316 per watt before the application of potential adjusters and total year-to-date bookings of 43.7 gigawatts. Our total backlog of future deliveries now stands at a record 58.1 gigawatts and includes orders for delivery as far into the future as 2027. The continued long-term demand for our products and the fact that our technology is expected to serve as the backbone for many of our customers' long-term growth plans is a testament to First Solar's strong fundamentals, grounding our commitment to the principles of responsible solar, our differentiated technology platform, our balanced approach to growth, liquidity and profitability, and our ability to provide a U.S. technology and manufactured product. In the third quarter, our manufacturing facilities produced 2.4 gigawatts of modules, and we shipped 2.8 gigawatts. Although showing signs of the recent easing, the overall shipping and logistics environment remains challenging. Alex will later discuss the impact of this on our Q3 results and full year guidance. Manufacturing performance metrics remain consistent across our existing fleet, and construction of our third manufacturing facility in Ohio and our first manufacturing facility in India remains on schedule. During the quarter, we announced 4.4…

Thanks, Mark. Starting on Slide 7, I'll cover the income statement highlights for the third quarter. Net sales in Q3 were $629 million, an increase of $8 million compared to the prior quarter. On a segment basis, our module segment net sales in Q3 was $620 million compared to $607 million in the prior quarter. . The increase in net sales was primarily driven by higher module volumes sold from our plants in Malaysia and Vietnam. Gross margin was 3% in Q3 compared to negative 4% in the prior quarter, primarily driven by the impairment of the Luz del Norte project in the prior quarter. Our Q3 module segment gross margin of 4% down from 5% in Q2 2022 was negatively impacted by two key [indiscernible] logistics items, partially offset by lower module costs and reductions to our warranty and module collection recycling liabilities. Firstly, with respect to sales rate, while spot rates have begun to ease significantly in recent weeks, higher sales rate charges under shipping contracts entered into at the beginning of the year continued to put pressure on our costs to deliver products during the quarter. Secondly, with respect to logistics, we experienced an unforeseen demurrage charge of approximately $30 million but what about this charge? Which is a discrete variable cost outside of the freight rate paid for transoceanic shipping. Demurrage charge are excess storage fees charged as a result of containers and modules remaining in port beyond a contractually agreed period. Whilst the shipping environment over the past 2 years has largely been characterized by container shortages and transit times well above prepandemic norms, the recent significant reversal in vessel waiting times and container turnaround times, though welcomed on a long-term basis if sustained has created near-term logistical challenges. In particular, during the third quarter,…

All right. Thank you, Alex. I would like to discuss the U.S. policy environment, which has evolved significantly over the past quarter. As you may recall, the joint announcement from Senators Manchin and Schumer regarding the Inflation Reduction Act preceded in our last earnings call by just 1 day. Since then, we have seen the Act signed into law and First Solar had the privilege to be part of the White House event in September, celebrating the groundbreaking piece of legislation. . In our view, by passing and enacting the Inflation Reduction Act of 2022, Congress and the Biden-Harris administration has entrusted our industry with responsibility of enabling and securing America's clean energy future, and we recognize the need to meet the moment in a manner that is both timely and sustainable. Thanks to our strong foundation, including a repeatable, vertically integrated manufacturing template, proven technology platform and solid balance sheet, we were able to respond rapidly to enact -- to act by accelerating the decision to expand our U.S. manufacturing base. Our confidence in committing to a 1.5 billion expansion in American manufacturing and R&D was backed by a healthy order book, a robust pipeline of opportunities and approximately 2 decades of experience in scaling U.S. solar capacity. However, we still have a substantial journey ahead as the relevant U.S. government agencies work to implement the Act, providing interpretive guidance and alignment on process and administration. Specifically, we wait Department of Treasury guidance that will apply to what we believe is a legislation's intent to incentivize vertically integrated U.S. manufacturing under the Section 45X provision, allowing our thin film manufacturing process to access the entire integrated tax credit. Similarly, we also anticipate guidance on the domestic content bonus that project owners may seek under the new production tax credit…

Turning to Slide 10. We had a Q3 loss of share of $0.46 and updated our earnings guidance, including for the impact of unforeseen logistics costs. We raised our year-end net cash forecast midpoint by $400 million to reflect higher module bookings prepayments as well as lower forecast CapEx. Operationally, we produced 2.4 gigawatts and shipped 2.8 gigawatts of modules. In addition to our recently announced 3.5 gigawatt U.S. greenfield plant, we today announced a $270 million investment in a new dedicated R&D line to be located at our Perrysburg, Ohio campus. Finally, Series 6 demand remains robust with 43.7 gigawatts of year-to-date net bookings, leading to a record contracted backlog of 58.1 gigawatts. The 16.6 gigawatts of new bookings since our prior earnings call in July have a base ASP, excluding adjusters, of $0.316. And with that, we conclude our prepared remarks and open the call for questions. Operator?

[Operator Instructions] We'll take our first question from Kashy Harrison at Piper Sandler.

So just going to -- I'm just going to combine a bunch in here. So you indicated that some of the contracts that you signed recently have adders associated with the higher ITC. I was wondering if you could help us quantify how much revenue upside you may expect entering calendar '23 and '24 as we think about those years? And then maybe just some color on how you’re thinking about financing all these investments, the $1.5 billion that you’ve talked about. And then finally, maybe just some color on how you expect to recognize these credits within your financial statements in the coming years. .

All right. I'll take the first one, and then I'll let Alex do the finance and then how we expect to recognize the credits in the P&L. So our contracts have and we've been doing this for an extended period of time now in corporate provisions that relate to domestic content to the extent there was any legislation that would be passed that would differentiate domestic content value for incremental ITC or even out with the PTC. So we've incorporated those matters. What I’ll say from my prepared remarks is one of the things that we highlighted is that, we recognized as part of our backlog that has already been contracted as of the end of last quarter for about 1.4 gigawatts, we have modified those contracts, which would include value now for domestic manufacturing and it was $52 million against that 1.4. And in my prepared remarks, I indicated it was about $0.037. So there’s a significant uplift what’s been contracted so far is we’d be recognizing across ‘23 and ‘24, but we have a lot more volume that we have to go out and contract. But I think it’s an encouraging first step to have 1.4 now contracted at a pretty nice increase to our baseline ASP.

Yes. Kashy. On the -- I'll do the credit first as a quicker answer. We would expect it to be in the statement of a reduction to cost of sales. So you'll see it hit gross margin and then flow through the P&L from there. From a financing liquidity perspective, you start with where we are today, we're forecasting ending in the year at about $1.8 billion of net cash. That's the midpoint of the guide. At that point, we'll have about $200 million of debt associated with our India plant, the assumption being that Luz del Norte project and the debt associated with that is sold by the end of the year. So that's about $2 billion gross cash, $1.8 billion net at the midpoint. If you think about use of that capital, by the end of the year, we'll have spent substantially all of the CapEx associated with our third Perrysburg factory, which is nearing the end of construction. We'll have double-digit millions [ph] remaining there, but the majority of that CapEx will be spent. As it relates to the India CapEx, we'll have 2% to 3%, maybe slightly higher, 400 remaining by the end of the year. The majority of what's left there will be covered by debt draws against the facility. So the limited impact to net cash there. So you can think about between those what will be effectively through that CapEx spend or have debt associated with that CapEx spend by the end of the year. We've recently committed to about $1.5 billion of spend. So that's $200 million to expand Ohio, about $1 billion for our fourth plant in the U.S. and just under $300 million for an R&D line. That $1.5 billion will get spent over 2023 and 2024, potentially a small…

We'll move next to Philip Shen at ROTH Capital Partners.

First one is on bookings. You've had a really nice bookings run for the past couple of quarters. It looks like Q4 should be strong. I was wondering if you might be able to quantify what that might be? And then also for Q1 and Q2, would you expect things to slow down then? Or do you think the bookings could continue? And it's ultimately the goal to potentially even book at through the end of the decade, perhaps, even over the next year. As it relates to the module cost structure, if solar, given this new FEMA building requirements that is up for a vote, if solar is required to build at risk category 4 versus now, which is risk category 1. And I know [indiscernible] fighting for risk Category 2, how much more cost would that bring to your cost structure if we need to go to Category 4. My understanding is to hit Category 2, there's no increase in your cost structure, but to get the category 4, is it $0.01 or $0.02 or potentially more? And then finally, from a housekeeping standpoint for Q3, can you share how many gigawatts were shipped that were recognized in revenue?

All right, Phil, I'll take the first 2 and I'll let Alex take the last one. First off, Phil, as you can see what we announced in our presentation deck that if you look at our total pipeline of opportunities and then you look at our mid to late-stage opportunities, as I said in my prepared remarks, the 114 gigawatts of total opportunities and mid- to late stage is around 70 gigawatts, which both of those are record highs for us and meaningful opportunities for us to continue to see strong bookings momentum. I think this is the fourth quarter in a row that I think we've had double-digit bookings. So if you go back and if you look, starting with end of last year, Q4 of last year, we've had 4 quarters now with double-digit bookings. And this quarter here, at 16.6 [ph] is now an all-time record. When I look at near term, and I indicated, we'll sell through 2026 by the end of the year. And when -- and I also indicated we have a number of multi-gigawatt multiyear opportunities that are still in our pipeline. And we are seeing customers that are wanting to commit through the end of this decade. And we indicated in the prepared remarks, most of the bookings that we've seen right now are through 2027. And so now we're seeing longer-dated opportunities and again, multi gigawatts, which would be a historic record high individual bookings transactions that for us as a company. And I think where we sat before, our highest bookings we did before, I think it was somewhere in the range of about 5.4, 5.5, something like that with an individual counterparty. We've got multiple opportunities that would be significantly higher than that if we were able to close…

And Phil, just to your last question. So we produced 2.4. We shipped 2.8 gigawatts on a sole basis, it's about 2.25. So 2.25. If you look at that against 620 revenue, it implies about a $0.275 [ph] ASP recognized.

We'll take our next question from Colin Rusch at Oppenheimer & Company.

Could you talk a little bit about the maturity of your process around the heterojunction process and products that you guys are looking at coming to market with -- and then as well with the price increases that you’ve been able to push through, is any of that price increase related to the manufacturing tax credit at all?

Yes. So Colin, I think you're talking about our multi-junction product that we've announced our development around, which we also referred to as Tandem. Look, as it relates to the technology, we've made significant advancements in that regard in terms of the capabilities and improving and delivering high-efficiency products along the lines of the road map that we've envisioned so far. And ultimately, we'd love to get to a point where we're sitting at 24%, 25% type of efficiency at the module level. The biggest issue that we still have around -- I think we made good progress in the lab. The real question is ultimately, how do we commercialize and when do we come to market. And one of the challenges that we've had in that regard is finding the right silicon supply chain, one that meets the criteria that are aligned with our approach around responsible solar. So, I think the technology is evolving quickly. The real question is, how quickly can we bring it to market? And how quickly can we get confidence in that supply chain that we would have to be dependent upon for the bottom sell, which at least the current vision is top cell thin-film CadTel, bottom cell crystalline silicon. Over time, we could look to evolve that to a thin-fin film construct, but that would be further out into the horizon. As it relates to pricing, again, what we said in the prepared remarks was that we are just in the process of realizing domestic content value that has been embedded in our base contracts. So we’ve contracted 1.4 gigawatts. If you look at ‘23, ‘24 and ‘25, we have just on a capacity -- nameplate capacity perspective, we’ve got north of 20 gigawatts of volume that will be available on a nameplate capacity will be slightly lower than that when you think about actually realization of capacity given the overall ramp of the new factories. But there’s a lot of volume still to go through. We’re happy to see the uplift, which is right now a little bit -- it’s about $0.37 or so of value. So we did 1.4 gigawatts and $52 million of ASP value creation. So a lot of opportunities still go after the balance [ph]. We're just still in the early innings, and we’ll continue to provide updates as we progress.

We'll go to our next question from Julien Dumoulin-Smith at Bank of America.

Congratulations team again. Well done, I got to say. I just wanted to follow up on a couple of pieces. You talked about capital allocation on brief. Can you talk about just expansion, right? You alluded to Europe as being an opportunity. Clearly, they have their own mandates or preliminary mandates in ‘25. Can you talk about that? Also, I’ll note that the European bookings opportunity is a little bit modest…

Julien, we lost you. All right. I'll -- look, I think the question was around further expansion. And we are continuing to evaluate expansion, whether in the U.S. or outside of the U.S. We think we're very well positioned in both the U.S. and India. We're happy with the progress we're making with our new factory in India. We're happy with the interest in our technology and the building up of our pipeline and very happy with the fact that we are now starting to contract for that volume off of that factory. And we're looking at multiyear agreements in India as well. U.S., the momentum is strong, the pipeline is very robust. And it's a matter of continuing to see that fill up. And then as we do, we'll inform our views on incremental capacity. EU for right now, we still would like to see better clarity around policy. And as I indicated, we, among others, that are involved in the EU from a manufacturing standpoint or supporting the market have written a letter or signed a letter that would hopefully encourage you to provide clarity around long-term stability of policy that would ensure -- enable an environment that is constructive to investments that we would need to make in the EU to support their long-term PV goals and climate change goals. So a lot going on, a lot of opportunity. It’s just a matter of prioritization, and we’re happy to see -- we’re happy that we have options that we can consider.

We'll go next to Brian Lee at Goldman Sachs.

Apologies in advance, I'm going to ask about pricing again. I know there's been a lot on the call about that. But a couple of quarters in a row now where base ASPs for out-year bookings are increasing. I mean, it sounds like based on your commentary, Mark, you still have upside levers, not talking about the adders just on the base ASPs across portfolio bookings going forward. So just curious if that’s the right read across here. And then how we should be thinking just in general around trends you’re seeing for I would assume U.S. capacity versus Malaysia and Vietnam capacity or getting priced differently going forward? And then my follow-up would be just with all the capacity you’re building and some of the commentary coming from some of your peers, clearly encouraging that we’re seeing some onshoring of the supply chain here. But how are you thinking kind of longer term, back half of this decade, you guys have always been a bit more prudent about adding capacity when others are maybe a bit more irrational or have been. Like what do you think about the landscape of new players coming in into the U.S.? And then what the implications for your kind of longer, longer-term field strategy? And then maybe ASPs would be if you think about kind of beyond the next 3-plus years?

Yes. So in terms of base ASPs and opportunities, yes, we clearly are seeing an opportunity there as it relates to what was already contracted as of our last quarterly filing and as of the end of June. As indicated, we have provisions in our contracts. And in some cases, even if provisions are not in our contract, customers are reaching out to us and asking for an opportunity to get U.S. supply, which will enable their value creation on domestic content. And then we have a discussion with them. And appropriately adjust -- amend the contracts or the incremental ASP value, we think, is appropriate for dedicating that that allocation to a particular customer. So that's momentum, and we'll continue to see how it progresses. Like I said, we're in very early innings, but we've got a lot of opportunity to continue to pursue. As it relates to U.S. capacity versus Malaysia, Vietnam, as of now, as we see the horizon sold through 2026 by the end of this year, I see all that volume in Malaysia, India -- excuse me, Malaysia, Vietnam has been committed and sold as part of that overall volume. And we are distinguishing ASPs in a meaningful way for that volume and nowhere near -- it will be substantiated by the difference in the relative cost structure between Malaysia and the U.S. on a landed cost basis. So we are seeing some of that, but it's not -- so far it has not been material. And we'll continue to evaluate it as we move forward to ensure that we can sell through that capacity. And if we find that it's difficult to sell it into the U.S., we'll look to sell and support other markets internationally, such as EU from our Malaysia, Vietnam facilities over time. Look, we know that new capacity is going to come into the market. We believe we're an advantaged established player. We've got a unique initiated technology. We're the partner of choice with a number of key customers here in the U.S. We also firmly believe that CapEx is going to be higher to bring production into the U.S. and the cost is going to be higher to manufacture here in the U.S. Our Series 7 product is a low-cost product relative to Series 6 relative to Series 6 in Ohio, but also relative and competitive with our international factories for Series 6. So we believe we've got a differentiated technology, a low-cost technology. And we also believe that competition to put manufacturing here in the U.S., whether it's at the module level, the cell level or down to the wafer level, that will be a higher cost of product that we still believe we can differentiate ourselves and maintain attractive ASPs even if that were to happen.

We'll take our next question from Maheep Mandloi at Credit Suisse.

Maybe just one question on the contracted backlog. Can you talk about how many of contracts at manufacturing PTC or the domestic content ITC pass-through build-in? And so trying to think how much of that 0.18 [ph] per watt flows through the bottom line? And how much could we expect to be shared with the end customers? And separately, I just wanted to understand more on the R&D line investment. What could we expect over there? It seems like it's like a 1 gigawatt spare capacity, but I just want to understand what new upgrades or changes and mix like that.

Yes, Maheep. On the backlog, we do not have any contracts where we are passing through or sharing the Section 45 production manufacturing tax credit. So let’s be clear, that’s all staying with us as we continue to build manufacturing and develop, we’re going to use the proceeds on that credit to continue to expand both manufacturing and development and R&D here, but we’re not sharing that credit with our customers under these contracts.

As it relates to the R&D line, look, as I indicated, it's a 1.3 million square foot facility. We envision that, that line will probably start as it relates to ETAs. We may not run it 24/7. We may run it 5 days a week kind of thing, may not run again 24 hours. We're probably going to be doing something in the range of 1,000, maybe 1,200 plates a day for engineering tests. So it has capacity. Obviously, you can do much more than that but it's more or less as needed given the development requirements that we have for various programs, both on our thin film as well as our multi-junction tandem and we'll utilize it as well over time to even think about next-generation technology, whether it's perovskites or some other thin films that could evolve over time. So we're excited about having the R&D line. It decouples us from being constrained by our manufacturing capacity. It's going to improve our cycles of learning, and we really believe it will accelerate our technology road map and time to market.

We'll go next to Keith Stanley at Wolfe Research.

Just one clarifying question on Slide 4. The year-end nameplate capacity it looks higher for the new Series 7 plants than the slide you showed earlier in the year for Ohio and India. What's driving that? Are they a little ahead of schedule or anything else going on?

It relates to -- when we announced the $1.2 billion investment in about 4.4 gigawatts [ph] of capacity, we did that I believe it was August, we indicated we were driving incremental throughput through our existing footprint. So we -- the factory was initially backed in to do about 16,000 to about 16,500 models a day. Now we've taken it up to 17,000 modules a day. So by that incremental throughput, we're getting more capacity out of the new factories. Plus, we’ve also optimized across the existing footprint of Perrysburg I and Perrysburg II, which will drive more throughput. So a combination of those two gives you almost a full gigawatt of incremental capacity. But it’s for the new factories, and we are evaluating doing that for India as well. So we may pull another couple of hundred megawatts out of India based off of the throughput improvements and capital that we would deploy there. So it’s really driven by that, just incremental throughput through the factories with a little bit of capital to make sure that it happens.

And we'll take our final question today from Joseph Osha at Guggenheim Partners.

Three quick questions for you. First, I'm wondering -- I know it's hard to comment. Do you know much about what the cash timing of 45X benefits might be versus when you book them? I'm curious about that. I'll just do all 3. The second question is looking at your tandem cell technology. I'm curious, is that more aimed at some of what you're looking at doing at rooftop or might we see that deploy in utility scale. And then third and finally, could we see you, given the magnitude of this U.S. footprint expansion, maybe think about starting to export some of that product? That’s -- those are my questions.

Yes. So on the cash timing, it's something that's going to come, I think, with more clarity when we get IRS treasury guidance. Typically, at the end of the year, we would file a tax return, 6 to 9 months after the year-end, and then there will be some time after that for us to receive cash. We're still -- it's still not clear exactly what process that will go through. So we're awaiting guidance to understand that more.

Yes. And then as it relates to our tandem product, the initial targeted market is going to be rooftop residential, largely through -- we've talked before about a partnership with SunPower. So that's largely the channel market and initially a rooftop. But the expectation will be over time as we continue to drive cost out of the product, optimize it more to a utility scale application versus a rooftop application that we'll be able to make that transition from our target -- initial target market of rooftop into utility scale. And then as it relates to exports, there’s clearly an opportunity to export even if there’s a point -- I know there’s a question I think Bryan may have asked earlier about the excess capacity in the U.S. market. We have the capability at the right time if need be to export into international markets [indiscernible] ourselves to the full benefit and the full integrated benefit under the manufacturing tax credit. So it’s something to be evaluated. But what I would say is near term, look, when you look at our pipeline, gross pipeline of 115 gigawatts, 114 gigawatts, excuse me, there’s more than ample opportunity here in the U.S., as you can see by that pipeline that the vast majority of that sits in the U.S. And so that’s our primary market that we’ll be focused on for the near term.

And that does conclude today's question-and-answer session and today's conference call. We thank you for your participation. You may now disconnect.