First Solar, Inc. (FSLR) Q4 2022 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to First Solar's Fourth Quarter and Full Year 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.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its fourth quarter and full year 2022 financial results as well as its guidance for 2023. 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 update, Alex will then discuss our financial results for the fourth quarter and full year 2022. Following these remarks, Mark will provide a business and strategy outlook. Alex will then discuss our financial guidance for 2023. Following their remarks, we will open the call for questions. Please note, this call will include forward-looking statements that involve risks and uncertainties, including risks and uncertainties related to the Inflation Reduction Act of 2022 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. We began 2022 with the expectation that it would be challenging from an earnings perspective as we face unprecedented logistics and commodity costs. But we also expected it to be a year of transition, setting the stage for growth and profitability into 2023 and beyond. We entered this year in a significantly stronger commercial, operational and financial position with increased R&D investment, new domestic and international capacity coming online and a new Series 7 product. We also began the year with a record contracted backlog, a significant pipeline of bookings opportunity and a robust demand in our core markets. This momentum is driven by our points of differentiation, including a unique CadTel technology, vertically integrated manufacturing process, domestic production, strong balance sheet and commitment to responsible solar, placing us in a position to respond to emerging opportunities, particularly those enabled by the rapidly evolving policy environment. This momentum is also due to the hard work, commitment and passion of our associates. Beginning on Slide 3, I will highlight some of our key 2022 accomplishments. From a commercial perspective, in 2022, we saw a precipitous shift towards long-term, multiyear module procurement. This record volume of multi-gigawatt deals spanning multiple years was driven by a combination of competitive pricing, competitive technology, agile contracting, shared values and trust in our ability to deliver the certainty that our customers are looking for. As a result, we had an excellent year from a bookings perspective, securing a record 48.3 gigawatts of net bookings in 2022. This was an increase of 30.8 gigawatts from our prior annual record of 17.5 gigawatts set in 2021. Our total backlog of future deliveries as of today's earnings call now stands at a record 67.7 gigawatts. Financially, while Alex will provide a more comprehensive overview of our 2022 financial results, our full year EPS results came in towards the high end of the guidance range we provided at the time of our third quarter earnings call. We ended the year with a gross cash of $2.6 billion, or $2.4 billion net of debt, which is an increase to gross and net cash of $800 million versus the prior year. This puts us in a position of strength to expand our capacity, invest in research and development and technology improvements and pursue our strategic opportunities. From a manufacturing perspective, we produced a record 9.1 gigawatts in 2022. Additionally, at the start of 2023, we achieved a significant milestone, producing our 50th gigawatts since commercial production began in 2002. Average watts per module produced in 2022 increased to 462 watts, an increase of 14 watts, and we increased our top production bin from 465 watts in 2021 to 475 watts in 2022. We exited 2022 with 9.8 gigawatts of nameplate manufacturing capacity and, last month, commenced initial production at our next-generation Series 7 factory in Ohio, which will continue to ramp through 2023. We are also on track to complete the construction and commence the ramp of our Series 7 factory in India during 2023. Furthering our manufacturing expansion program, in 2022, we announced a new 3.5-gigawatt Series 7 factory in Alabama and a 0.9-gigawatt increase to nameplate capacity at our Ohio factories. By 2026, we expect U.S. nameplate capacity of approximately 10.7 gigawatts and global nameplate capacity of approximately 21.4 gigawatts. We also announced in 2022 an additional investment and a dedicated $270 million research and development facility to be located near our existing Perrysburg manufacturing plant in Ohio. We expect that this investment will improve cycles of learning and innovation and reduce downtime on our commercial production lines, while allowing us to produce full-sized prototypes of both thin film and tandem PV modules. Strategically, we were able to largely exit our legacy systems business in 2022, which enables us to focus on our greatest technology and competitive advantages. Alex will discuss potential remaining legacy costs and opportunities related to this business when he provides guidance later in the call. Looking forward, we continue to evaluate the opportunities for further investments in incremental manufacturing capacity, including both greenfield expansion and throughput optimization at our currently planned capacity. This evaluation will require, among other things, an understanding of the anticipated IRS and treasury IRA guidelines, including the respect to domestic content as well as confidence in the presence of robust supply chain that supports our expansion objectives. Therefore, no expansion decisions have been made at this time. Turning to Slide 4. I'll next discuss our most recent shipments and bookings in greater detail. We shipped approximately 2.3 gigawatts and 9.3 gigawatts for the fourth quarter and full year 2022, respectively, which was within the guidance range that we provided during the third quarter earnings call. As a reminder, we generally define shipments as when the delivery process to a customer commences, whereas revenue recognition, or volumes sold, occurs at a transfer of control of the modules to the customer, which is commonly upon arrival at destination port or project site. With regards to bookings, we have sustained our recent momentum with 12 gigawatts of net bookings since the third quarter earnings call at an average base ASP of $0.308 per watt. As previously noted, we are seeing a perceptible shift in procurement behavior as evidenced by the volume of multiyear, multi-gigawatt orders placed by our customers. Since the beginning of 2022, large developers such as Intersect Power, Lightsource BP, National Grid, Origis Energy, Savion, Silicon Ranch and Swift Current, among others, have placed orders for at least 2 gigawatts. The fact that many of these transactions are with repeat buyers is an indication of the trust and shared values that underpin our customer relations. And it is a clear differentiator from the most more transactional approach taken by many of our competitors. After accounting for shipments of approximately 2.3 gigawatts during the fourth quarter, our future expected shipments, which now extend into 2029, are 67.7 gigawatts. Excluding India, and including our year-to-date bookings, we are sold out through 2025. We have, in recent months, pivoted from negotiating solely for 2026 volume to work with customers who are looking to secure multiyear contracts over the remainder of the decade. As a result of this commercial shift, we have not, as previously expected, as of the third quarter earnings call, fully sold out of our non-India production in 2026. We have sold more volume than previously expected for deliveries in 2027 and beyond. In total, we now have 25.5 gigawatts of planned deliveries in 2026 and beyond, an increase of 12.3 gigawatts from our prior earnings call. I'll now turn the call over to Alex, who will discuss our Q4 and full year 2022 results.

Thanks, Mark. Starting on Slide 5, I'll cover our financial results for the fourth quarter and full year 2022. Net sales in the fourth quarter were $1 billion, an increase of $0.4 billion compared to the prior quarter. Our module segment net sales were $846 million, an increase of $226 million from the prior period. The increase in module revenue is driven by higher volumes sold, partially offset by a slight reduction in ASPs. The remaining increase in our net sales was attributable to the completion of the sale of our Luz del Norte project in Chile. For the full year 2022, net sales were $2.6 billion compared to $2.9 billion in the prior year. This decrease was driven by $0.4 billion of lower revenue from our residual business operations due to the divestitures of our project development businesses in the United States and Japan, along with the divestitures of our North American and international O&M businesses. The decrease in our Other segment revenue was partially offset by a $0.1 billion increase in our module segment revenue due to higher volumes of modules sold, partially offset by a reduction in ASPs. Gross margin was 6% in the fourth quarter compared to 3% in the third quarter, primarily due to lower module and freight costs, partially offset by a reduction in ASP. For the full year 2022, gross margin was 3% compared to 25% in the prior year. The full year gross margin was negatively impacted by reductions in module ASPs, the sale of certain projects in the prior year, higher sales rate and demurrage charges and the net impairment in sale of our Luz del Norte project, partially offset by lower module costs. Sales rate in logistics costs adversely impacted our financial results, reducing gross margin by 19 percentage points in 2022 compared with 11 percentage points in 2021 and 6 percentage points in 2020. Given the recent decline in spot rates and the reversion of the shipping market towards pre-pandemic conditions, we expect sales rate and logistics charges to be less of a headwind in 2023. As a reminder, many of our module manufacturing peers report sales rate as a separate operating expense outside of gross margin. For comparison purposes, we encourage you to consider this factor when benchmarking our module gross margin percentage with our peers. SG&A, R&D and production start-up expenses totaled $107 million in the fourth quarter, an increase of approximately $11 million relative to the prior quarter. This increase was driven by a $13 million increase in production start-up expense, primarily related to the addition of our third factory in Ohio, which was partially offset by lower share-based compensation expense. Our fourth quarter operating loss was $46 million, which included depreciation and amortization of $71 million, production start-up expense of $33 million and share-based compensation expense of $8 million. Our full year 2022 operating loss were $27 million, which included depreciation and amortization of $270 million, production start-up expense of $73 million, net losses of $48 million associated with the sale of our Luz del Norte project and share-based compensation expense of $29 million, partially offset by a $254 million net gain from the sale of certain businesses. With regard to other income and expense in connection with the sale of our Luz del Norte project in the fourth quarter, the project's lenders agreed to forgive a portion of the outstanding loan balance, which resulted in a gain of $30 million recorded within other income. Separately, interest income in the fourth quarter was $18 million, an increase of $8 million compared to the prior quarter. And interest income for the full year 2022 was $33 million and leases to $27 million compared to the prior quarter. Both increases were driven by higher interest rates on our cash and marketable securities balances. We recorded an income tax expense of $1 million in the fourth quarter. For the full year, we recorded tax expense of $53 million, primarily attributable to the sale of our Japan project development platform and due to certain losses in Chile for which no tax benefit could be recorded. Fourth quarter loss per diluted share was $0.07, compared to $0.46 in the prior quarter. For the full year 2022, loss per diluted share was $0.41, compared to earnings per diluted share of $4.38 in 2021. Our 2022 EPS result came in above the mid-point of the guidance range that we provided during the third quarter earnings call. Let’s turn to Slide 6 to discuss select balance sheet items and summary cash flow information. The aggregate balance of our cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities was $2.6 billion at the end of the year, an increase of $0.7 billion from the prior quarter and $0.8 billion from the prior year. Our year-end net cash position, which includes the aforementioned balance less debt was $2.4 billion, an increase of $0.7 billion from the prior quarter and $0.8 billion from the prior year. The increases in our net cash balance were primarily driven by module segment operating cash flows, including higher advanced payments received for future module sales, partially offset by capital expenditures associated with our new plants under construction in the United States and India. Cash flows from operations were $873 million in 2022, compared to $238 million in 2021. Capital expenditures were $327 million in the fourth quarter, compared to $223 million in the third quarter. Capital expenditures were $904 million in 2022, compared to $540 million in 2021. With that, I’ll turn the call back to Mark to provide a business and strategy update.

All right. Thank you, Alex. Looking forward to 2023, we are pleased to enter the year with solid fundamentals, including a record backlog of orders and a manufacturing capacity growth plan that is well underway. We are on track to add 6.2 gigawatts of global nameplate manufacturing capacity this year as our new Series 7 factories come online in the U.S. and India. We expect to exit 2023 with 16 gigawatts of annual nameplate capacity. We also expect 2023 to be a pivotal year as we build on the foundations established in 2022 to scale manufacturing, invest in R&D and evolve our technology and product road maps. In addition, we expect to begin benefiting from the advanced manufacturing production tax credits provided for under Section 45X of the Inflation Reduction Act. We await IRS and Treasury guidance that we expect will reflect the statute’s language and intend to incentivize the domestic production of modules and the related components. Given our fully integrated thin film manufacturing process, we expect that this guidance will entitle us to integrated tax credits for wafers, cells and module assembly, which we estimate will equal approximately $0.17 per watt for modules produced in the United States and sold to a third-party. Finally, we expect to host an Analyst Day event at our manufacturing facility in Ohio later this year, on a date to be announced, to deliver an overview of our technology, product and manufacturing road maps as well as to highlight our newest Ohio factory. Turning to Slide 7. As previously noted, our new Series 7 factories remain on schedule. The U.S. factory commenced initial production in January of 2023 and will continue to ramp over the remainder of 2023. Our India factory is forecast to begin production in the second half of 2023 and ramp into 2024. Once fully ramped, these factories are expected to lead the fleet in terms of module wattage and efficiency and regionally on a cost-per-watt basis. Based on our current technology road map, we see the potential for meaningful improvement in our module performance, with a mid-term goal of achieving a 570-watt monofacial Series 7 module. As we significantly increase our nameplate capacity, we believe this anticipated growth, when balanced with liquidity and profitability will drive earnings accretion as contribution margin expansion is leveraged against a largely fixed operating expense structure. As a reflection of this expansion road map and continued optimization of the existing fleet, we have summarized our expected exit nameplate capacity in production for 2023 to 2026 on this slide. Turning to Slide 8. Our total bookings opportunities of 93.1 gigawatts remain robust with 58 gigawatts in mid to late-stage customer engagement. When combined with our current record backlog of 67.7 gigawatts, we believe we are well-positioned for growth with a solid foundation of demand visibility. As it relates to converting the pipeline into future bookings, our record bookings in 2022 were driven by the favorable balance of near to mid-term available supply, aligned with customer demand for large volume multi-year procurement. The time line into which we are now selling is longer-dated than historic U.S. sales cycles. As a consequence, this could result in year-on-year reduction in bookings volume as we look to sell long-term forecasted supply in 2026 and beyond. Our commercial strategy remains largely focused on supporting long-term multi-year customers who prioritize price and product availability certainty as well as ethical and transparent supply chains. Furthermore, this demand environment supports the rationale of evaluating future capacity growth, subject to the aforementioned considerations related to expansion, including those related to IRA domestic content guidance and the assessment of our supply chain. Before turning the call back to Alex, I would like to take a brief moment to touch on the global policy environment. Broadly speaking, 2022 placed us on the cusp of significant growth in domestic solar manufacturing within our core markets. As policymakers here in the United States and leading democracies abroad demonstrates, they are serious about tackling the unhealthy overconcentration of solar supply chains in China and the vulnerabilities that come with it. In fact, 2022 saw industrial policy designed to spur investment and create jobs at scale. The year saw a tangible progress in the U.S. with the passage of the Inflation Reduction Act in India with the production-linked incentive program and movement towards spurring domestic manufacturing within the European Union with the introduction of the Green Deal industrial plan. Furthermore, we’ve also seen a significant uptick in legislation focused on tackling the issue of forced labor with the passage of the Uyghur Forced Labor Prevention Act in the United States and similar laws and initiatives, either implemented or under consideration, in Europe, the United Kingdom Australia and Japan. These significant recent and ongoing policy developments demonstrate that governments around the world are supportive of solar technologies that can be scaled in a sustainable manner for both people and the planet. I’ll now turn the call back over to Alex, who will discuss our financial outlook and provide 2023 guidance.

Thanks, Mark. Before discussing financial guidance, I’d like to reiterate our approach to growth and gross margin expansion. As discussed on our second quarter earnings call, this strategy includes our approach of contracting out our capacity several years in advance of production. The anticipated reduction of our cost per watt produced, the expected benefits from capacity expansion through scaling a largely fixed overhead structure in order to generate incremental contribution margin and our agile contracting approach would both provides the potential realization of incremental revenue and is expected to mitigate freight and certain commodity risks. As we look to 2023 guidance, we continue to see this approach benefiting our forecasted financial results relative to 2022. For the full year, we expect to recognize an average ASP sold of $0.285 per watt, approximately $0.01 higher than in 2022. Looking across the horizon, as is showed in the 10-K filing, as of 31 December 2022, we had a total contracted backlog of 61.4 gigawatts with expected future revenue of $17.7 billion for a portfolio average base ASP of $0.288 per watt, before the application of potential adjusters. As it relates to cost award and our contracting approach and their impacts on both the potential value of the technology adjusters, which are reflected in the 10-K filing and our 2023 financial guidance, I’d like to provide a brief update on the timing of our technology and cost road maps. From a technology road map perspective, we continue to work to prove out both bifaciality and our copper replacement or cure program and are progressing well with both initiatives. However, even if ready for high-volume manufacturing deployment, we expect to elect to push out implementation of these technologies across the majority of the fleet for two reasons. Firstly, technology implementations typically necessitate manufacturing downtime, both to make tooling and process changes and to conduct preproduction trials. And as we’re sold out through 2025 with limited ability to delay shipments, significant downtime would be suboptimal to executing on our delivery commitments. Secondly, we typically roll out technology improvements at our Perrysburg facilities and then, once fully optimized, across the remainder of the fleet. This leads to a potential for greater downtime in Perrysburg during initial rollout, which has the highest opportunity cost given the anticipated value of domestically produced modules, both from an IRA domestic content and Section 45X perspective. Our new dedicated R&D facility, projected to be operational in mid-2024, is expected to alleviate the need for choosing between downtime and implementation by providing a means to optimize these technology improvements with significantly less disruption to our commercial manufacturing lines. With respect to the potential value of the adjusters related to potential future technology improvements, as reflected in the 10-K, the push out of these technology programs will result in a reduction in the supply of products with these technology improvements, leading to an expected reduction in technology adjusters, particularly in 2024 and early 2025. We have correspondingly reduced our estimate for these adjusters from $0.7 billion across 31.4 gigawatts in Q3 to $0.5 billion across 31.5 gigawatts in Q4. From a cost reduction road map perspective, as it relates to cost per watt produced, we ended Q4 2022 5% lower than Q4 of the previous year, at the midpoint of our original forecasted production range of 4% to 6%. This was used to throughput, yield and efficiency improvements and reductions in variable costs, slightly offset by increases in fixed costs. We’ve been able to achieve a sustained cost per watt reduction road map over the last several years, having reduced our cost per watt produced by 18% from Q4 2019 to Q4 2022. On a full year 2022 to 2023 basis, we expect a 1% to 2% reduction in cost per watt produced, driven by improvements in throughput, yield, efficiency and inbound freight, partially offset by higher fixed costs and a headwind from the conversion of all production to high mechanical load modules in 2023 to optimize order fulfillment management and logistics. With regards to high versus standard mechanical load modules, we may reintroduce the stand-alone product in future years. And in doing so, we would expect to see a cost per watt benefit. As it relates to exit rates, comparing Q4 2022 to Q4 2023, we’re forecasting a cost per watt produced increase of 4% to 6% or approximately $0.01 per watt. This is driven by several factors, including costs driven by the expected implementation of bifaciality at our lead line in Perrysburg in Q4 of 2023, which results in a reduction in front side watts, offset by a higher energy production profile; planned downtime associated with our Series 6 throughput optimization in Ohio; and a headwind associated with our Series 7 factory in Perrysburg, exiting its ramp phase in mid to late 2023, but not yet operating at full scale by year-end. As it relates to cost per watt sold, we ended Q4 2022 with a 2% year-over-year increase over Q4 2021, in line with our most recent forecast. This was largely due to higher sales freight and logistics costs. In 2023, we expect sales freight and logistics costs trend back towards pre-pandemic levels throughout the year. Several key metrics, including reliability of schedule, transit times and congestion are currently trending positively. However, transit time volatility generally and labor relations in West Coast ports post potential headwinds. We are working to mitigate these issues through shipping route and port-of-entry optimization and through further utilization of our warehousing network. In addition, as part of our contracting strategy, approximately 67% of our volumes sold in 2023 has some form of sales freight risk coverage. Although given the forecasted reduction in sales freight and logistics costs, we expect limited excess recovery in 2023. On a cents per watt basis, we expect our full year sales freight and logistics costs to be approximately $0.027 per watt, with international transit costs remaining above pre-pandemic norms. Taken together, we forecast cost per watt produced, ramp and underutilization and sales freight and logistics costs to combine to yield a Q4 2022 to Q4 2023 net reduction in cost per watt sold of 9% to 11% and full year 2022 to 2023 cost per watt sold reduction of 7% to 9%. On a full year basis, expected ramp and underutilization costs impact our cost per watt sold reduction by approximately 4 percentage points. With respect to other commodities, we continue to largely mitigate exposure to glass costs through strategic long-term, predominantly fixed price agreements with domestic suppliers that have economic benefits to us as we achieve high levels of production. We do expect the near-term volatility in glass pricing, given that the contractual provisions in our supply contracts relating to input cost adjustments operates on a backward-looking basis. And therefore, we are seeing a slight increase in cost in the first half of 2023, which is expected to then reduce in the second half of the year. From a frame perspective, there’s been a reversion of aluminum and steel rates back to historical levels. We expect these costs to be less of a headwind in 2023. Related to framing costs, we have hedged 90% of our aluminum exposure for our Series 6 U.S. plants in 2023, which is approximately 1/3 of our Series 6 production. In addition, substantially all of our Series 7 production, which utilizes a steel back rail, is subject to contractual steel adjusters. And lastly, with respect to operating expenses, despite a forecasted increase in operating expenses in 2023, particularly related to research and development, we continue to scale manufacturing capacity at a greater rate than operating expenses, leveraging our fixed cost structure to reduce operating expense per watt and increase operating margin. So with this in mind, I’ll next discuss [indiscernible] 2023 financial guidance. Please turn to Slide 9. Strategically, in 2022, we completed the sales of our Japan project development business, our Japan O&M business and our Chilean Luz del Norte asset. In January of this year, we completed the sale of our 10-megawatt Maricao operating asset in India, bringing our PV solar power systems balance on our balance sheet, as of today, to zero. With these sales, we have effectively transitioned back to a module-only company. We do have certain remaining risks, liabilities, indemnities, warranty obligations, accounts payable, accounts receivable, earn-outs, cash collection, dispute resolution and other legacy involvements related to our former systems business. Given the declining impact of our other segment, we will no longer provide segment-specific guidance, but shall in the future note any significant impact from the other segment to our consolidated financials. As it relates to capacity expansion, our factory expansion and upgrades remain on schedule and are expected to impact operating income by approximately $195 million to $220 million in 2023. This is comprised of start-up expenses of $85 million to $90 million primarily incurred in connection with our new factories in Ohio and India; an estimated ramping on the utilization costs of $110 million to $130 million. We anticipate these expansions and upgrades will contribute meaningfully to our production plans in 2024 and beyond. Operationally, in 2023, we’re expecting to produce 11.5 to 12.2 gigawatts of modules, and after taking into account reductions in inventory, fell 11.8 to 12.3 gigawatts. From a capital structure perspective, our strong balance sheet has been and remains a strategic differentiator, enabling us both to weather periods of volatility as well as providing flexibility to pursue growth opportunities including self-funding our Series 6 and Series 7 transitions. We ended 2022 in a strong liquidity position. And coupled with strong forecasted operating cash flows, modular advance payments and our existing India credit facility, we expect to be able to finance our current capital programs without acquiring external financing. We are evaluating putting in place our revolving credit facility to support jurisdictional cash management as well as to provide short-term optionality and expect to address more details on our capital structure and liquidity outlook at our Analyst Day. And finally, a few words on the Inflation Reduction Act. The IRA offers, amongst other incentives, production tax credits for solar modules and solar module components manufactured in the U.S. and sold to third parties. Although we continue to await guidance from the IRS and Treasury regarding these credits under Section 45X of the statute, based on our view of both the intention of the credit and the language of the legislation, we intend to begin recording a corresponding benefit in our financial statements in Q1 of 2023. Following consultation review with outside advisers, our auditors and the SEC, we expect to recognize these credits as a reduction to cost of sales in the period such modules and the integrated eligible components are sold to customers. In addition, these credits will also be shown as government grants receivable on our balance sheet. We encourage you to review the safe harbor statements contained in today’s press release and presentation for the risks related to our receiving the full amount of tax benefits that we believe we are entitled to under the IRA. I’ll now cover the full year 2023 guidance ranges on Slide 10. Our net sales guidance is between $3.4 billion and $3.6 billion; gross margin is expected to be between $1.2 billion and $1.3 billion, which includes $660 million to $710 million of advanced manufacturing production tax credits under Section 45X of the IRA; and $110 million to $130 million of ramp and underutilization costs. SG&A expense is expected to total $175 million to $185 million compared to $165 million in 2022 and $170 million in 2021. R&D expense is expected to total $155 million to $165 million compared to $113 million and $99 million in 2021 and 2022, respectively. The 2023 expense is increasing primarily due to our expectation of adding headcount to our R&D team to further invest in advanced research initiatives. SG&A and R&D expense combined is expected to total $330 million to $350 million. And total operating expenses, which includes $85 million to $90 million of production start-up expense, are expected to be between $415 million and $440 million. Operating income is expected to be between $745 million and $870 million, as inclusive of $195 million to $220 million of combined ramp and underutilization costs and plant startup expenses, and $660 million to $710 million of Section 45X credits. Turning to non-operating items. We expect interest income, interest expense and other income to net to $60 million to $75 million, which is predominantly driven by higher expected interest rates for deposits. Full year tax expense is forecast to be $60 million to $85 million. Tax expense to 2023 is largely driven by the U.S. blended tax rate of approximately 25%. However, we also expect a significant loss in the year as we begin manufacturing for which we will not receive a current benefit, leading to a higher effective tax rate. This results in a full year 2023 earnings per diluted share guidance range of $7 to $8. Note from an earnings cadence perspective, we anticipate our earnings profile will be higher in the second half of the year, both due to contractual delivery schedules as well as the timing of first sales of our Series 7 products, which are forecast to begin shipping in Q3 of this year. This is forecasted to result in an increase in inventory at our distribution centers in the first half of 2023, which is expected to reverse in the second half of the year. Additionally, Section 45X credits, recognized, will increase after Q1, driven by both the timing of volumes sold as well as the inventory lag, whereby products sold in the early part of 2023 may have been manufactured in 2022. Capital expenditures in 2023 are expected to range from $1.9 billion to $2.1 billion as we complete the construction of our Ohio and India Series 7 plants, commence construction on our Alabama Series 7 plant, implement throughput upgrades to the fleet and invest in other R&D-related programs. Our year-end 2023 net cash balance is anticipated to be between $1.2 billion and $1.5 billion. The decrease from our 2022 year-end net cash balance is primarily due to capital expenditures, which we expect will be partially offset by financing proceeds and customer advance payments. Turning to Slide 11, I’ll summarize the key messages from today’s call. Demand has been robust, with 12 gigawatts of net bookings since the prior earnings call, leading to a record contracted backlog of 67.7 gigawatts. Our opportunity pipeline remains strong with a global opportunity set to 93.1 gigawatts, including mid- to late-stage opportunities of 58 gigawatts. On the supply side, we continue to expand our manufacturing capacity and expect to exit 2026 with approximately 21.4 gigawatts of nameplate capacity, including approximately 10.7 gigawatts of nameplate capacity in the U.S. We are, as previously announced, adding a new dedicated R&D facility in Ohio, projected to be operational in mid-2024, which we believe will allow us to optimize technology improvements with significantly less disruption to our commercial manufacturing lens. We ended the year with a gross cash balance of $2.6 billion or $2.4 billion net of debt, which is an increase to both gross and net cash of $800 million versus the prior year. We believe this puts us in a position of strength to expand our capacity, invest in research, development and technology improvements and pursue other strategic opportunities. And finally, we’re forecasting full year 2023 earnings per diluted share of $7 to $8. And with that, we conclude our prepared remarks and open the call for questions. Operator?

Thank you. [Operator Instructions] And now we’ll take a question from Philip Shen of ROTH.

Hi guys, thanks for taking my questions. First topic here is on bookings. Congrats on your Silicon Ranch light source deals. It looks like you had 7 gigawatts of incremental bookings in the quarter. Can you share what the pricing might look like? Is it incrementally higher or lower versus the last quarter? I think, from Q3, your incremental bookings were maybe $0.316 versus $0.301 per watt in Q2. And then how should we think about bookings momentum ahead? It sounds like you’re expecting more multiyear agreements? And what do you expect on pricing there? And then shifting over to domestic content. I think in the last call, you guys talked about contracting 1.4 gigs of domestic content, I think in 2023, representing roughly $0.04 a watt of value. How much have you done since then? And how much of that is ultimately factored into guidance? And then finally, for a housekeeping question here. I think you shipped 2.4 gigawatts in Q4, but how many megawatts were recognized in revenue versus the $846 million of module revenue in Q4? Thanks very much.

All right. On the bookings side, so we -- since our last earnings call, we booked 12 gigawatts, okay? Since year-end, we booked 7.3 gigawatts. If you look at our disclosure that’s in the K, I think Alex referenced it as well, our contracted backlog revenue is a little less than $18 billion as of the end of the year, it’s like $17.7 billion. The implied ASP on that is like $0.288. And if you do the math, the walk from the prior quarter, I mean, you’ll get something around $0.31, I believe. If you’d look, there’s a lot of rounding and stuff that’s going on in there. What we did say is that on the 12 gigawatts that we booked since the last earnings call, the ASP on that was $0.308. If I look at the ASP for what we booked in the first quarter this year so far, right, through the earnings call here today, that ASP is higher than that $0.308. So the average ASP that we booked for the $0.073 is higher than the five that we booked since the other portion of the total booking since the last earnings call. So ASPs are pretty – in a pretty solid position. I guess the other way I look at it is just from the Q3, 10Q to the 10K at the year end. I think we added about eight tenths of a cent or something to the average ASP. So you saw it, I think it was like $0.28 or something like that the prior quarter. Now it's like $0.288. And we're seeing a lot more bookings now, obviously higher than that. And if you were to include the bookings that we have for January and February, I think the – you add about $2.3 billion of revenue or something like that in the average ASP on that contracted backlog, I think goes to be slightly above $0.29. So we're very happy with what we're seeing from an ASP standpoint and obviously the trajectory. And remember, we're booking a lot more volume than is not just in 2026, which is what we said we were targeting from the last earnings call we were going to be booking into 2027 and 2028. We now have 47 gigawatts or so of 27 – 24 gigawatts I think or so of volumes that go out into 2026, 2027 and 2028. It's about 45% of our capacity excluding India. So we're booking relatively far out all the way up through 2029, and we're getting, good ASPs with which, so we're pretty pleased with that. Momentum wise, Phil, I guess the challenges continue to be is finding customers that want to contract that far out in the horizon. And one of the things that we're trying to do instead of just sell each discrete year out, we're trying to sell out multiple years, right? So we're not just selling 2026, we're trying to bring in 2026, but bring in your 2027, 2028 or even 2029 volume into the discussions with the customer. So, we will see how that goes. I mean, the pipeline clearly says the momentum's there and there's opportunities we've got more than enough pipeline of opportunities that we could close on. So we're happy with that momentum. But again, it's changing kind of the normal cadence and the dynamics of bookings and in particularly in the U.S. most people wouldn't go out multiple years. But we are seeing a lot of customers that are willing to do that. And not only just out three or four years, but in some cases out five or six years. Domestic content, Alex may have a more precise number than I do. I know, we ended up booking a little bit of incremental volume from the last earnings call. It wasn't a significant amount of the few 100 megawatts. But the ASP uplift that we're getting there is still in that range of around $0.03 to $0.04. So we are seeing good momentum there. And we're out aggressively talking 2024 and 2025 right now with customers to get incremental ASP uplift for domestic production that we would provide our customers. So that's an ongoing activity from that standpoint. And Alex may have the actual gigawatts from a revenue standpoint.

Yes. So Q4 we shipped 2.3, but from a solar volume it was 3.2. So that takes full year numbers. So 2022, we ended up shipping about 9.2 from a [indiscernible] perspective, 8.9, yes.

And our next question will come from Brian Lee of Goldman Sachs.

Hey guys. Good afternoon. Kudos on the quarter and the strong guidance for the year. I guess, one question we’ve been getting a lot from investors lately is just given your business is shifting to more of these long-term, multi-year contracts versus spot. Can you kind of remind us how your deposits work on those contracts? And then what sort of recourse, you are setting up – when you set up these multi-year deals? And then I guess what impact, if any – are you seeing in discussions or pricing from expectations that crystal silicon panel pricing and poly will continue to fall here in the medium term. And then just maybe as I squeeze in a follow up, any thoughts around to Phil’s question around the pricing, anything you are seeing or hearing or discussing with customers and partners around domestic content requirements and your ability to get that in your price? Thanks guys.

Yes, so Brian, on the deposits, we typically take somewhere up to 20% in deposit. We don’t necessarily take all of that in cash, but we do ask some cash. We’re also depending on the credit worthiness of the counterparty and the size of the deal, willing to take some of that in other liquid security healthy surety bond, potentially impairing guarantees. If it gets to be very large deals and multi-year deals, and that number would get very large. We sometimes take security and then roll that through the deal. So it continues to stay with us until we get towards the end of that deal. If you look on the balance sheet as of year end, you’re going to see something, a region of $1.2 billion of customer deposits in terms of future bookings on the balance sheet side of today. And we would expect that to rise as we go through the year. There will be some of that recognized as revenue. So it’ll come off being deferred revenue, but given the bookings trajectory and the timing of deposits placed from some of the deals that we’ve already signed in the last year, we would expect that number to rise through the year.

Yes. Brian, as it relates to the concerns around customer’s views around where silicon pricing will go, I mean, I think you’re going to have – you have some customers which are largely ones that we’re not obviously negotiating and closing deals with that will kind of take their leading indicators from what they’re seeing with Chinese excess capacity that’s being added and poly prices which have kind of lift sort of around. I think they dropped pretty significantly, then they kind of stepped up back to, I think they’re somewhere in the $30 or something like that per kilogram, which is down slightly from year end. But I think they were trending down to in the 20s, low 20s, and they bounced back from there. So some customers are taking their clues from there. Others are looking at if they will. Let’s look at the Christmas silicon supply that is actually able to address whether it’s the U.S. market or even the India market. And that’s largely going to be in India particular, it’ll be domestic production. In the U.S., there’s potentially some supply that can come from Southeast Asia and address the U.S. market, but it also generally is going to have to use non-Chinese poly. And obviously that’s more of a constrained available resource than Chinese poly. And so – and then there’s also the component around domestic content and policy criteria and ultimately what defines domestic content. And there's still a lot of work to be done there, but I think there is momentum going on that says there has to be true substance for production in the U.S. in order to meet the domestic content criteria, which is more than – most likely just module assembly and it could potentially include the cell. And as of right now, there's not a lot of announcements in the U.S., where there'll be actually not just module assembly but cell production here in the U.S., and again, having to use non-Chinese poly to do that. And so I think when everybody takes all those dynamics together and evaluate where, what type of risk profile they're wanting to accept, the great thing about IRA is that there's a piece for everyone, right? The opportunity for everyone, whether you're the developer or whether you're the module manufacturer or whether you're the IPP or the utility who's going to own the generating asset over time, there's opportunity for everybody. And so the question is, do you want to sort of secure your business plan and take risk off the table? And if you're willing to do that and do that at a fair price, then First Solar is a great option to do that. If you're trying to take some risk and you're wanting to find opportunities to avail yourself to potentially alternative supplies that maybe will still allow you to benefit to the maximum potential under IRA, then that's a risk that some may want to take and wait. But what we see right now is that we've got more than enough opportunity to engage. Yes, it's an item that is in some of our customers' thought process. But for the most part, most people aren't paying a lot of attention to it in that regard. Pricing-wise, in the U.S. and domestic content, look the deals that we're pricing today include both domestic production and include international production. We are differentiated in the pricing. We're not reflecting that in the breakout into the bookings ASP, but we are differentiated pricing. So our domestic production will be generally at a premium to our international production. So that is being captured in the bookings that we're recognizing today. Now, there is a whole bunch of volume that sits in 2024 and 2025 that we are engaging with customers on to have conversations for certainty of allocation, because the contracts in 2024 and 2025 do not require specific allocation from a specific factory. So in those cases, we are talking about if we are allocating from a domestic production there should be some consideration for that and potential adjustments to ASPs, which is what we referenced before in the last quarter. We booked 1.4 gigawatts in the last earnings call, this last quarter we booked a few more hundreds of megawatts, not a lot, but a few more. And most of that's coming through at a nice uplift around $0.03 to $0.04. So a lot of opportunities still to go get that and work to be done. We'll update you over the next few quarters if we realize that benefit.

Thank you. [Operator Instructions] And now we will go to Colin Rusch of Oppenheimer.

Thanks so much, guys. Can you talk just a little bit about the cadence of CapEx as well as the unwind on the deferred revenue?

Yes. So the forecast is about 2 billion of CapEx through this year on the construction asset side of the plant. You're going to see that on a fairly regular cadence through the year for Alabama. On the U.S. and India side, you're going to see the remaining CapEx spend on those plants be towards the front end of the year. There's some more R&D CapEx occurring at the back end of the year, so you're going to see that be relatively even across the year on a blended basis, but from different areas. In terms of the unwind we don't expect to see significant amounts of the current deferred revenue actually recognized this year. There's about 1.2 on the balance sheet today. I think it's going to be something recent. 100 million to 200 million of that will roll off this year and be recognized as revenue, so not a meaningful number added to that current deposit base. As I said, we expect to add material amounts to that this year. The significant portion of that is from deferred deposits for deals that have already been signed and therefore, it's simply a question of the timing of that posting. There is a piece that relates to future bookings and our assumptions, and that will depend a little bit on the timing of bookings, the total volume of bookings for this year. But the majority of our expectation is for deals that have already signed and that we'll get deposits just based on the time schedule already agreed.

And next we will go to Julien Dumoulin-Smith of Bank of America.

Hey guys, it's Alex [indiscernible] for Julien. Just one quick one. You mentioned some caution at this point about announcing further expansions, I'm just curious if you can elaborate what sort of guidance or indications you're looking for in order to think about expansion? And then would you think about possibly doing something in the U.S. as far as a produced basis to sell into other markets, thinking places like Europe specifically, if you were to announce additional expansions at this point? Thanks.

Look, as it relates to the expansion, we'd like to make sure – we believe we have a thorough understanding of the intent of the IRA and the policies that are applicable to domestic manufacturing in the ITC, manufacturing tax credit, excuse me, as well as the domestic components that would avail to an ITC bonus, but there's still clarity for definitions that we want to make sure that we understand. So where we are right now is we're actively evaluating to the point of engaging with our tool vendors, to the point of even looking at site selections and getting to a point where we can be shovel-ready as quickly as possible. But we want to get the additional clarity just so there's nothing that pivots in a direction that we're not envisioning at this point in time. For us personally as well as what the criteria is going to be for crystalline silicon manufacturing as well to begin production in the U.S., we believe that the intent of IRA is to create enduring long-term supply chains, which would therefore motivate and align the incentives to true manufacturing in the U.S., more than just final module assembly with all the build material being sourced from international locations. And if everything lines up along those lines, then that sort of helps inform our view there as it relates to the inherent value of more domestic manufacturing, plus we want to make sure that, while we believe we're fully entitled to the vertically integrated manufacturing tax credit, to the extent that we can get confirmation through guidance from IRS and Treasury, that would be very beneficial as we think about factory expansion. And then the other is just working through our supply chain glass, in particular. Our new Series seven product in the U.S. is 90-plus percent of the production of the build materials here in the U.S. And we've got to continue to expand our supply chain for things like steel, back rails and glass – cover glass and substrate glass, for example. So we're working through all that. And so we just – we're being patient. We're obviously focused very much on continuing to see the demand and strong bookings that we have been able to capture over the last several quarters. So that bodes well for furthering that investment decision. As it relates to exports, I think we got to all be real careful with that. I think that in some limited capability, that would make some sense. But if you look at even what's going on in India right now, that they've provided a lot of incentives to the domestic industry, which are, unfortunately, choosing a set of supporting the domestic market, exporting products into the U.S. right now because of higher ASPs in the U.S., and clearly, that's not aligned with the mode administration and what they intended to do with the incentives that they put in place, I think we have to be careful as an industry as well that if we are availing ourselves to significant incentives here in the U.S. And not supporting our domestic needs, and then I think we could all compromise the – and put at risk the IRA and the benefits that have been created through IRA. And the thing we should just – my view around this is we've got 10 years of has been very well documented and very well thought out from an IRA standpoint, let's stay, true to the spirit and intent. And that is to help the U.S. create long-term energy independence and security in manufacturing in the U.S. and then exporting internationally, I'm not sure aligns with what the original spirit was of the Act.

And now we'll take a question from Maheep Mandloi of Credit Suisse.

Hi, Maheep Mandloi from Credit Suisse. Thanks for taking the questions. And slightly to talk about the revolving credit facility, could you just talk about the timing on that? And Also, does that kind of avoid the need for any other capital needs as and when you decide to add new capacity here? Thanks.

Yes. So the main reason there is if you look at cash flow generated across the business, we sell today the vast majority of our products into the U.S., both from our U.S. facilities and our Malaysia and Vietnam facilities. However, the way that our profitability works is we transfer price, the significant amount of the profitability associated with production of the international modules back to the international locations, and we also send cash back as well. If you look at our CapEx for the year, about three quarters of the forecast CapEx for the year is going to be in the U.S. And so what we expect to see over the year is that as our cash profile comes down, we're starting the year at about $2.4 billion of net cash, we have, about a forecast, $2 billion CapEx program. You look at the year-end cash, the guide takes us $1.2 billion to $1.5 billion, that implies about $1 billion of cash. What we're going to see is we're going to have our U.S. cash balance come down more than our international cash balance. So what a revolver does is it gives us flexibility in terms of being able to manage jurisdictional mix of cash. In terms of timing, we're not in a rush to do this. We've got plenty of liquidity in the U.S. today. So it's something we're looking at right now, but not something we're rushing into. In terms of other capital, as we mentioned on the call, if you look at our current forecast spend profile, our current forecast, manufacturing expansion and R&D profile, we can finance everything that we have in front of us without the need to go out and raise additional capital. That said, if we were to add incremental capacity, something that we continue to look at, or if we were to find other opportunities in the R&D space, we may need to raise capital at that point. So something we're continuing to look at. And as Mark mentioned in his prepared remarks, we intend to hold an Analyst Day later this year. We'll give a more update there around our liquidity and capital plans.

And now we will go to Joseph Osha of Guggenheim.

Hi, thanks. Further to the conversation we're just having, if you think about the manufacturing credit and the fact that it looks to me, based on your cash guide, like you're going to book a lot of it this year, but probably not monetize it until next year, I'm curious, on a go-forward basis, could we see that work a little better because this enforces the first year, so you're booking it but not actually receiving. And I'm also curious, Alex, if you thought about any ways to making the future monetize that credit more frequently, say, on a quarterly basis or something like that? Thank you.

Yes. As it stands right now, you're going to see it reflected in the P&L on a quarterly basis. But what's going to happen is at the end of the year, we'll go through our regular cadence tax filing, which today is typically occurs somewhere around six to nine months after the end of the year. That will then go over to treasury to the IRS, and there'll be some time, after which, they will review that and then process a direct paid cash payment. So we expect that to be most likely slower in the first year. As this program gets underway, there's some chance that it may speed up a little bit. But it's not going to be a case where you're going to see cash coming in, in the same year as you're recognizing value from the credit in the P&L. So it's one of the reasons why if you look at our cash balance today, you're right, there's no cash reflection from the IRA credit in 2023. We expect that will come through in 2024 and potentially even up into 2025. As I said, the first year might take a bit of time. We may see some increase in speed thereafter.

And with that, everyone that does conclude today's question-and-answer session and today's call. We'd like to thank everyone for your participation, and you may now disconnect.