Good afternoon, everyone, and welcome to First Solar's First Quarter 2021 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its first quarter 2021 financial results. A copy of the press release and associated presentation are available on First Solar's website at investor.firstsolar.com. With me today are Mark Widmar, Chief Executive Officer and Alex Bradley, Chief Financial Officer. Mark will begin by providing a business and technology update. Alex will then discuss our financial results for the quarter and provide updated guidance for 2021. Following the remarks we open the call for questions. Please note, this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations, including, among other risks and uncertainties, the severity and duration of the effect of the COVID-19 pandemic. We encourage you to review the safe harbor statements contained in today's press release and presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?

Thank you, Mitch. Good afternoon and thank you for joining us today. I would like to start by thanking the First Solar team for delivering a solid first quarter. Our operational and financial results were strong and market demand for our Series 6 technology continues to be robust. Operationally our second Series 6 factory in Malaysia exited its ramp period. Nameplate manufacturing capacity has increased to 7.9 gigawatts and we're now consistently producing 455 watt modules. Commercially, we have secured 4.8 gigawatts of year-to-date net bookings which include 2.9 gigawatts since previous earnings call. Financially, we reported module segment gross margin in line with our Q1 guidance and earnings per share of $1.96 which includes the completion of our US project development and North American O&M business sales. Overall I'm pleased with our strong start to the year which has positioned us to deliver our annual earnings per share guidance. Turning to Slide 3, I will provide an update on our Series 6 capacity ramp and manufacturing performance. Despite unplanned downtime caused by winter storms in Ohio and a temporary logistic driven billing material shortage in Malaysia along with planned downtime for throughput and technology upgrades which combined adversely impact cost for watt by approximately half a penny. We delivered strong manufacturing results for the first quarter. On a fleet-wide basis in March and in April month-to-date, megawatts produced per day was 20.2 and 22 which represents a 17% and 27% increase compared to December 2020. Capacity utilization was 92% and 99% despite being impacted by the aforementioned planned and unplanned downtime. Manufacturing yield of 96.7% and 97.4% continues to show strength in light of the ramp of our second Series 6 factory in Malaysia, which achieved manufacturing yields of approximately 93% and 97%. As previously mentioned, we started commercial…

Thanks Mark. Starting on Slide 7, I'll cover the income statement highlights for the first quarter. Net sales in Q1 were $803 million, an increase of $194 million compared to the prior quarter, an increase in that sales is primarily due to an increase in systems revenue driven by the sales of Sun Streams 2, 4 and 5 project. On second basis, our module segment revenue in Q1 was $535 million compared to $548 million in the prior quarter. And that was given assumptions to project within construction at the time of sale, the majority of the module recognized the revenue in the systems segment. Gross margin was 23% in Q1 compared to 26% in Q4 of 2020. Systems segment gross margin was 31% in Q1 compared to 18% in Q4 of 2020 and this increase was primarily driven by the aforementioned project sales in Q1. Despite the aforementioned delay in certain module delivery as well as higher expected logistics costs. Our Q1 module segment gross margin was 19% which was in line with the guidance we provided on the prior earnings call. Our module segment gross margin in Q1 includes $1 million of charges associated with the initial ramp from manufacturing in Malaysia and $4 million of underutilization expense stemming from plan downsized throughput technology upgrades. Ramping on the utilization expense in total reduced module 7 gross margin by approximately 1%. Also as a reminder sales freight and warranty are included in our cost of sales and reduced module segment gross margin by 8 percentage points in Q1 compared to 7 and 6 percentage points in Q4 and Q3 of last year. Despite utilizing contracted routes, minimizing changes and using a distribution center, we incurred higher rates during Q1. These are constrained container availability yin the global shipping market.…

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

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

Phil, first on the pricing environment. Clearly, we've seen pricing from up - as we look across horizon whether it's not a lot of volume for occurring. But at the extent we had US available supply and current use. You'll see from our pricing. But your eventual look across the horizon and to 2022, 2023 and 2024. The one limiting factor that you know relative to the number that you referenced is that, there's - in the US in particular the projects that people have bid are under significant pressure really from all dimensions. And ultimately it all come down, an affordability, although there's going to be a number of these project that just not going to happen because when you look at the general cost pressures that they're seeing, just commodity cost pressures, right? When steel going up, aluminum going up, copper going up. You're seeing pretty much the entire balance system labor cost under pressure as well. It's pretty strange in all these projects and one of things we got to be mindful of it. We price across the horizon. It still has to fundamentally work within a customers pro forma, their financials have to work. And so to, to try to go out and capture the highest potential price point. I'm not sure it's going to serve us the best when it comes to ensuring the viability of the project. And so we've been trying to work with very capable well financed counterparties and having high certainty and quality of the execution of the projects which form our views around certainty of execution, we need to make sure that the economics on pricing works. The other thing I would say that falls into the equation is the, our confidence around our cost reduction roadmap. So as to…

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

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

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

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

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

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

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

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

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

Your next question is from Moses Sutton of Barclays.

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

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

I mean part of the systems pipeline originally.

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

About three quarters of gig.

744.

About three quarters of a gigawatt.

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

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

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

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

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

Your next question is from Brian Lee with Goldman Sachs.

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

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

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

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