Good afternoon, everyone, and welcome to the First Solar's Second 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]. I would now like to turn the call over to Mr. 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 announced its second 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, provide updated guidance for 2021. Following remarks, we'll open the call for questions. Please note, this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations, including, among other risks and uncertainties, the severity and duration of the effects of the COVID-19 pandemic. We encourage you to review the safe harbor statements contained in today's press release and presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?

Thank you, Mitch. Good afternoon, and thank you for joining us today. Beginning on Slide 3, I would like to start by thanking the First Solar team passion, continuing excellence and there are many achievements in the second quarter. Operationally, we have started site preparation with the recently announced 3.3 gigawatt factory in Ohio, which will further cement our position as the largest PV module manufacturer in the Western Hemisphere. Additionally, I'm pleased to announce that contingent upon permitting and approval of government incentives that are satisfactory to First Solar, we are intending to invest approximately $680 million to add 3.3 gigawatts of manufacturing capacity in India. These next-generation factories represent a significant leap forward in our technology road map and will produce our most competitively advantaged modules with an expected lower cost per watt and environmental footprint compared to our existing fleet. Commercially, market demand for our CdTe technology is at a record level. Seven months into the year, we have already booked 9 gigawatts, exceeding our prior annual record of 7.7 gigawatts in 2017. From a technology standpoint, our production lines are manufacturing record modules. To illustrate this point, samples produced during our regular production process were submitted for external verification and confirmed by the National Renewable Energy Laboratory at a world record 19.2% glass area efficiency for a CdTe module. For reference and in comparison to our previous aperture area record of 19% efficiency, our new record equates to a 19.7% aperture area efficiency. Additionally, our advanced research team has been creating new optionality in our R&D road map. For example, we recently deployed prototypes of early-stage bifacial modules at a test facility and are pleased with the initial results. In summary, the momentum we have cultivated, paired with an increased favorable policy environment, represents a compelling…

Thanks, Mark. Before discussing our Q2 results and 2021 financial guidance, I'd like to reiterate our core operating principle of endeavoring to create shareholder value through a disciplined decision-making framework, balancing growth, liquidity and profitability. As it relates to growth, we anticipate doubling our nameplate manufacturing capacity from approximately 8 gigawatts today to 16 gigawatts in 2024 through adding additional factories in Ohio and India as well as optimizing our existing fleet. Beyond that, we continue to evaluate the potential for further expansion in the United States as the policy environment develops. While liquidity position has been a strategic differentiator in an industry that has historically prioritized growth without regard to long-term capital structure. Importantly, we anticipate we'll be able to continue to self-fund the capacity expansion and strategic investments in our technology, whilst maintaining a strong differentiated balance sheet, which we believe is a meaningful competitive differentiator. While the strength of our balance sheet provides this flexibility, as we expand internationally, we may elect to utilize debt to mitigate currency risk and optimize return on our international expansion. As it relates to profitability, our technology and capacity road map are expected to enhance our long-term earnings potential. Despite a long-term PV industry trend of declining ASPs, we anticipate revenue growth through capacity expansion. From a pricing perspective, although there remains significant uncontracted volume yet to book, we're pleased with the pricing levels we've secured to date for 2023 deliveries, which in aggregate are only 1% lower than that of volume planned delivery in 2022. From a margin perspective, continued progress towards our midterm cost toward objective is expected to enhance our profit for potential. And furthermore, we've yet to book 2023 volumes for our next-generation PV modules which are expected to be produced by our recently announced factories. These…

[Operator Instructions]. Our first question comes from the line of Philip Shen from ROTH Capital Partners.

The first one is on Vietnam and Malaysia with the COVID situation there. I think, Mark, you mentioned that people are working hard and maybe even living at the facility to maintain utilization. Can you talk about how you expect utilization to trend ahead? Is there a risk for a shutdown of production at any point in time in the future? And how is this impacting your ability to roll out new updates and so forth? And then secondarily, in terms of bookings, you guys have had some nice bookings here. There's still a bunch available for 2023. I think you mentioned maybe 3 gigawatts. When do you expect that to possibly get booked? I mean, could we see that booked later this year? Or do you think that might carry into 2022?

Yes, Phil. So I guess on -- so obviously, we've got to comply with all the requirements of what's going on in both those countries. And in some cases, there's -- and there has been over periods of time in Malaysia around movement control orders. And fortunately, we've been -- and Malaysia have been deemed to be essential. So that continues to allow us to operate and we continue to try to make sure we comply with all the local requirements. We've also, in both of our facilities, started the process already to get our associates vaccinated. So most of our associates in both of the facilities have received the first shot and we'd expect here in the near term, we'd be able to provide the second shot. So that's helping as well. Vietnam is the one that I would say that's trending more significantly, right? On a relative basis, you could look at the Vietnam historical number of cases and fatalities are being relatively low by most standards. But we've seen a pretty significant increase here over the last 6 weeks or so. So the government has made and imposed other requirements, including to the extent that you are going to continue to run your factory, there's a requirement to quarantine on site. So we have made for accommodations for our associates there to quarantine. And we've got a schedule which would be in place where we'd be able to rotate associates through over periods of times where the current staff would be quarantine for a period of time, then the new a number of assets would come in over time. So we have been able to manage, and the team has done a phenomenal job. And I alluded to that in my prepared remarks, they continue to hit…

Our next question comes from the line of Eric Lee from BOFA.

Congrats on the bookings. For the bookings specifically, could you comment on the average ASPs as you look into '23? Is that still $0.20 -- high $0.20 per watt range? And can you talk about where you're booking into that '23-plus time frame?

Yes. So what we said on the call was that if you look at our current bookings that we have for 2023, they're essentially flat. I think we said they're down about 1%. And so they're essentially flat as we go from '22 into '23. And pricing, if you actually look at the profile of what we have booked and what we're currently in negotiations with right now is pricing has trended up for both '22 -- if you look at deliveries in '22 and then even what we're seeing in '23. So there's a lot of momentum. I think what's happening is we continue to book out again we are still somewhat capacity constrained even with the 2 new factories. That volume doesn't start to come out into '23. But even if you look at that volume relative to the global market, we are capacity constrained from that standpoint. And as our book builds up and firms up and it starts to constrain our available capacity to support new customers, it starts to firm up pricing in the marketplace. So we're happy to see that. We -- as we said that in our prepared remarks, we do look at this as a very balanced perspective to get an ASP that's attracted to both parties, right? The project economics have to work and our return requirements have to be met as well. So you have to balance those 2 into consideration. And the other thing I'll just say around the bookings is that we are -- and we alluded to this on the last earnings call. And if you look at effectively everything that we booked this quarter, we have started to implement the modifier around shipping costs. So we have benefited in terms of the contract structure in a way that if there's incremental sales freight costs that there would be a mechanism which that would be variable pricing to the customer to accommodate for that. So that's also an item that we're trying to make sure it gets properly reflected in our bookings as we go forward.

Our next question comes from the line of Ben Kallo from Baird.

Could you talk about a little bit about what went into your guidance, the assumptions? To bring down the low end just a little bit like that seems very small. So I just want to understand what went into there as far as assumptions on shipping costs, especially and then the timing of any other plant shutdowns or costs like that? And then my second question is just on the ASPs. What I heard you just say was that ASPs are up where you last talked to us about in your negotiations. Can you talk about if that has anything to do what that has to do with if it's supply chain? And then you also mentioned a kicker on the ASPs with the new technology. Could you maybe add more into that?

Yes, Ben, starting with the guidance. On a combined basis, you're not seeing the low end of the guidance range change. But what you are seeing is the impact of the settlement agreement that we had on the previous project come through. So the $65 million that was in the revenue line and flows straight through the gross margin. So that's a benefit to gross margin. If you look at the module side of gross margin, we're basically down about, call it, $15 million or so on volume as we lowered the lower end of the range on shipment volume and then about $65 million on freight. So it impacted in the quarter about $80 million on freight, $60 million outbound sales rate, $20 million inbound. We had about $15 million or so in the range as a risk. So we're having a net impact down of about $65 million. But again, don't forget that you had the impact coming off of this settlement agreement of $65 million. That's why the consolidated based on the range, you're not seeing it come down significantly.

On the ASPs, yes, we are starting to see the ASPs for -- and I'll separate -- we'll talk next-gen product before our secondly, but first is in terms of our Series 6 and Series 6 Plus in CuRe product that we are currently negotiating with customers at this point in time. Yes, we're seeing ASPs starting to firm up. And there's -- what First Solar is able to do, not only with the differentiation we have around capabilities and our technology, but there's an element of certainty. And given there's so much uncertainty right now that's going on with the crystalline silicon supply chain. Whether it's here in the U.S. or even you're starting to see some emerging issues start to come up in the EU and U.K. and in places like that, it's creating anxiety to a customer and the customer wants to make sure they can have certainty and there's no disruption to their commitment around their module supply chain. First Solar is decoupled from the Chinese Crystalline silicon supply chain, right? So it enables a different opportunity agent with customers and including that, that is playing into some of the opportunities. Again, though, you still have to deliver great technology and the evolution of CuRe in particular, and it's improving around its long-term degradation rate, I think, is further enhancing our relative competitive position in the marketplace. So it's the product, it's kind of the overall market, it's the certainty of contracting with First Solar is a key driver in the bookings momentum and the firmness of the ASPs. The -- what we alluded to on our new product, which will come out of both of our Perrysburg 3 factory and in our India factory, both of them will be higher efficiency than our current fleet. They also will be optimized. One will be optimized here in the U.S. for a tracker install in the India 1, which is largely -- India is largely a fixed tilt market. It will be optimized a fixed tilt structure, both of them will inherently create incremental value relative to the Series 6 and 6 Plus product that we have today. And I think what Alex alluded to and also couple that with both of them will be the lowest cost products in our fleet, I think there's an entitlement of $0.01 to $0.03 at least what our initial indications are about $0.01 to $0.03 of incremental gross margin realization with the next-gen product relative to where we sit today on a comparable basis with Series 6 Plus CuRe.

Our next question comes from the line of Brian Lee from Goldman Sachs.

I had two more modeling specific ones. I guess, first off, on the cash flow trajectory here for the next few years. Can you give us a sense of what net cash balance you're comfortable with? And sort of when you get back to positive free cash flow? Is that in 2024? because there's about the informed CapEx between Ohio and India here, so just wondering kind of what the right free cash flow trajectory to be assuming is? And then second question, just -- I know, Alex, you mentioned a lot of the OpEx is fixed. We've seen that over the years, but we typically also have seen start-up and production rate costs on new fabs. So how should we be thinking about those costs in '22 and '23 for Ohio and India, respectively?

Yes. So on the cash side, so we're guiding previously to $1.8 million to $1.9 million year-end number. That's now down to $1.35 million to $1.45 million. So $1.4 million midpoint. And the delta there is the $40 million of CapEx that's going to happen this year associated with that spend. So that still leaves another about $900 million to $1 billion or so that's going to happen in the next couple of years. We haven't given a minimum number that we're comfortable with. I think the business is going to be significantly cash generative over the next couple of years with the 6 factories that are already in place. I can't give you a guided number. But I'd say that we're going to generate enough cash organically, that would be comfortable we could finance the construction of the June factories on Boise we wish and not drop to levels that I wouldn't be comfortable with maintaining in terms of the base net cash balance. That said, for a few reasons, we may look to leverage the factory in India, especially. I think there's some optimization of capital structure here we might do. There's less equity going into a country where it can be more challenging to bring money in and out. I think there's some benefit to matching some of the revenue and expense stream with the capital structure. I think there's also some beneficial rates we could get using ECA financing, especially for some of the equipment is going to come out of Europe intently in the U.S. as well. So I'm comfortable we could with organic cash flow over the next couple of years, finance the factories on balance sheet without debt and leave ourselves at levels that be comfortable with, but I think there may be…

This concludes today's conference call. Thank you again for participating. You may now disconnect.