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…

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…

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…

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,…

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…

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…

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…

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.