Hello. Good afternoon, everyone, and welcome to First Solar's Third Quarter 2023 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. At this time, all participants are in a listen-only mode. As a reminder, today's call is being recorded. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Good afternoon, and thank you for joining us. Today, the Company issued a press release announcing its second quarter 2023 financial results. A copy of the press release and associated presentation are available on First Solar's website at investor.firstsolar.com. With me today are Mark Widmar, Chief Executive Officer, and Alex Bradley, Chief Financial Officer. Mark will provide a business update. Alex will discuss our financial results and provide updated guidance. Following their remarks, we will open the call for questions. Please note, this call will include forward-looking statements that involve risks, and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statement 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.

Thank you, Richard. Good afternoon, and thank you for joining us today. On our recent analyst day in September, we outlined our goal to exit this decade in a stronger position than we ever did. We believe the future belongs to thin film, and we described our long-term intent to be positioned to serve all addressable markets and commercialize the next generation of PV technology, balancing and optimizing across efficiency, energy and cost in an environmentally and socially responsible way. This long-term aspiration aligns with our nearer-term growth, which is underpinned by our points of differentiation and solid market fundamentals, including continued strong demand for our products, proven manufacturing excellence, a uniquely advantaged technology platform, and crucially, a balanced business model focused on delivering value to our customers and our shareholders. This is our last earnest call. We have continued to make steady progress on this journey, and I will share some key highlights related to continued strong demand and ASPs, manufacturing operational excellence, and expansion. Beginning on slide three, we will continue to build on our backlog with 6.8 gigawatts of net bookings since our last earnest call at an ASP of 30 cents per watt, excluding India. This base ASP excludes adjusters applicable to approximately 70 percent of these bookings, which when applied with our -- aligned with our technology roadmap, may provide potential upside to the base ASP. These bookings bring our year-to-date net bookings to 27.8 gigawatts and our total backlog to 81.8 gigawatts. Our total pipeline of future bookings opportunity stands at 65.9 gigawatts, including 32.5 gigawatts of mid- to late-stage opportunities. As it relates to manufacturing, we produce 2.5 gigawatts of Series 6 modules in the third quarter with an average watt per module of 469, a top end class of 475, and a…

Thanks, Mark. Beginning on slide five, as of December 31, 2022, our contracted backfill totaled 61.4 gigawatts, with an aggregate value of $17.7 billion. To September 30, 2023, we entered into an additional 23.6 gigawatts of contracts, and recognized 7.4 gigawatts of volume sold, resulting in a total contracted backlog of 77.6 gigawatts, with an aggregate value of $23 billion, which equates to approximately 29.6 cents per watt. Since the end of the third quarter to date, we've entered into an additional 4.3 gigawatts of contracts, contributing to our record total backlog of 81.8 gigawatts. Including our backlog since the previous earnings call, our contracts are approximately one gigawatt or more, with returning customer Long Road Energy, and new customers, including a new IPP, and an asset manager with multiple companies in its portfolio. Additionally, we have received full security against 141 megawatts of previously signed contracts in India, which now move to these volumes from the contracted subject conditions precedent grouping within our future opportunities pipeline to our bookings backlog. As noted on this day, while the ASPs associated with these India bookings are lower than those associated with the 6.6 gigawatts of US bookings since the prior earnings call, gross margin profile, excluding the 45x benefit, is comparable to the fleet average, given the lower production costs in our Chennai facility. Since the announcement of the IRA, we've amended certain existing contracts to provide US manufactured products, as well as to supply domestically produced Series 7 modules in place of Series 6. Consequently, over the past five quarters, to the end of Q3 2023, across approximately 11 gigawatts, we've increased our contracted revenue by approximately $354 million, an increase of $42 million from the prior earnings call. As we previously addressed, a substantial portion of our overall backlog…

[Operator Instructions] Your first question comes from the line of Philip Shen from Roth MKM. Please go ahead. Philip, your line is open.

Hey, guys. Thanks for taking the questions, and congrats on the strong bookings at what appears to be strong pricing. Congrats on the strong bookings, that what appears to be strong pricing. Mark, can you talk through the pricing at $0.30 a watt that's without India? And I think the prior quarter, there were some nuance around a contract with without freight. And so if you adjusted that where you typically include freight, was your prior pricing kind of closer to $0.31. So you guys are sitting close to $0.30 this quarter to maybe a bit of a drop, but really compared to the crystalline silicon price collapse. It looks like you're holding price pretty well. And then looking ahead, I think you guys said you may be selective and strategic with bookings. So should we expect things to slow down from here and maybe fewer bookings in general coming up in this full quarter here in Q4 and maybe in Q1 as well, especially since U.S. LPA module you have compliance module pricing has come down so much there? So just curious what you expect ahead there as well.

Yes. So from a branding standpoint, Bill, if you look at the bookings for this quarter, all the way out into 2029, so it's totally weighted in actually 2029. And so we're looking much further out in the horizon, which also kind of creates the dynamic of what is our base price and then what is the impact of the adders, which -- as we indicated, the $0.30, excluding India does not include the adders and 70% of the volume includes adders, and there a horizon that especially for the benefit of temperature-coefficient long-term degradation rate that we'll be in a much better position to capture those upsides. And as we indicated in the call, we're starting our initial buy-in production already in Ohio. And so when you look at the impact to the average ASP, and if you were to include the benefit of the adders to and marry that up and align it to our technology road map, as I indicated in my prepared remarks, you'd add about $0.02 or so to ASPs. So when you look -- when you make that adjustment, you compared to last quarter, you look at the period at which we're booking out into, but I would say the pricing is pretty stable quarter-to-quarter. And you're right. Last quarter, we had a relatively large deal that did not include sales rate. So there was a little bit of an impact to the average ASP because of that. But I would say, largely, it's pretty stable. We're very pleased with our ability to go further out into the horizon and still get very attractive pricing in the backdrop of a lot of changes in the very dynamic environment over the last 60, 90 days. As it relates to the comment about being discipline, we are going to continue to be disciplined. We are still supply constrained and we have a road map that will get us to 25 gigawatts. We're starting to see 27 fill up very nicely and starting to put more points on the board that go out 28, 29 and we touch 30 in some of the prior deals that we've done. If we come to the terms with customers on what makes sense for us, not just on ASP, but security, overall in terms of conditions, provisions to the extent they're applicable to domestic content, all that has to balance itself out into a deal that makes sense for us. And so look, that's how we're going to continue to engage them on market, and there's -- we'll see how the market reacts and especially the further events of the horizon, there will probably be some pause to some of our customers not willing to commit yet to that horizon, but we'll see how it plays out. But there's -- where they are now and maybe potentially decline slightly as we go across the next several quarters.

Your next question comes from the line of Julien Dumoulin-Smith from Bank of America. Please go ahead.

Hey, guys. It's Alex on for Julian. Just a follow-up if I can to that, Mark. When you think about where you guys are booking, and I'll say this like you guys used to be in the development game as well. So I think you obviously understand the lead times on these projects. I mean, how much is that mid- to late-stage compression, a function of just listen, there's a lot of uncertainty as far as timing of interconnects, permitting, et cetera? And looking out in 2028, it's sort of hard to say which projects will be first versus second versus third. Or is this more that the market is kind of getting back to some level of normalcy as far as supply and demand in modules and buyers are just electing to it? I guess sort of parse that for us relative to it just being really long dated as opposed to a sort of a shift in buyer sentiment or market conditions, if you will?

I don't see it as a huge shift in our customers' sentiment as they think about their realization against their development pipeline. Look, there are challenges as you indicated, permitting interconnection and what have you. But I think they all still are very bullish about ability to realize their contracted pipeline and secure off-take agreements. The issue, I think, is around when do you actually if we're contracting for module deliveries in 2029, and we're asking for security. Clearly, project is not in a condition at that point in time where they would be able to get financing put in place. So when you're talking about corporate liquidity capacity that's going to have to be used in order to provide the security, whether it's a parent guarantee and LC or actual cash. As you know, the project has to be much further along as it relates to financing debt and structure of tax equity before that liquidity is brought into the mix at the project level. So I think part of it is wanting to have the certainty of the delivery, but balancing that with capacity to -- from a security standpoint that we're requiring on our contracts, and it's just a matter of finding a good balance that can work. Parent guarantees for certain entities can work, but we want to make sure they're creditworthy parent guarantees and guarantees that those guarantees are issued against and that's sometimes for some of our customers becomes a little bit more challenging. So you kind of got this balance of wanting certainty, wanting to engage, clearly want to partner with First Solar, and they also know that and we're a loyal supplier to, especially our partners that have been with us for an extended period of time. But then also balancing their near-term liquidity constraints to the extent that they have then when do they want to undertone contract. So I don't see it so much of the sentiment to realization against the development pipeline. I just think it's you're going out to the horizon right now that people are maybe not as ready yet to commit capital and commit to the liquidity that we need to get comfortable with around security for module agreement.

Two things I might note. One is, at the Analyst Day, we talked around the fact that we actually over-allocate in the near term. And we do that deliberately because we tend to see projects move out to the right that gives us some comfort. The other reason we do that is a lot of our recent bookings have been framework agreements with customers, whereby they don't necessarily have a specific project allocating the modules they're buying from us. They just know they're going to need that total volume over a period of time. And those frameworks can be more challenging to plan for because there is often some flexibility in timing there. but also shows that customers and very long-dated bookings are willing to buy without necessarily loan exactly where the products go in because they value that certainty, and they know that over time, they'll find a home for it. So we've been seeing a lot more of behavior, which runs a little counter to your question, but we're seeing people looking out at times and they don't necessarily know exactly where it's going, but they're still willing to make that commitment because of the value I'm doing so. But as Mark said, the further we get out, the fact that we're now looking out into 2028, '29, it becomes part of people put meaningful deposits down and there's just less visibility on the framework side. That's why we talked about potentially seeing bookings slower.

Your next question comes from the line of Brian Lee from Goldman Sachs. Please go ahead.

Hi, thanks for taking the question. This is Grace on for Brian. I guess -- my question on competition. So 1 of your crystalline computer recently announced a 5 gigawatts sale expansions. It's I think it's the first sign of whatever is the [ph]equation from China in the U.S, so the CapEx is lower, but can you speak to your understanding of the cost structure for overseas peer building in building?

Sure. So there's a lot out there, the announcement that was made recently this week. -- 1 of our competitors that will be putting sales in the U.S. And look, there are others that are doing sales in U.S. Myer Burger made a commitment to do sales in the U.S., handle a few cells doing sales in the U.S., they're not a long term and want. But one thing I want to make sure is clear when you said vertically integrated, it's not vertically integrated all the way through to the poly-silicon. So yes, it's a module assembly with cell manufacturing. The wafer still are not manufactured in the U.S., the ingots, obviously not in the U.S. ignores the uncertainty were exactly where the poly-silicon is coming from. It could be from the U.S. manufacturer or potentially, Europe or Korean, I guess. So it's not an apples-to-apples comparison. But what I'll say is that if you look at the announcements that they've made, there's about $800 million for the sale and a few hundred million, $200 million, $300 million for the module, which is pretty comparable to our fully vertically integrated. So they're about $1.1 billion. But the -- what I think is maybe the most telling number to look at from a competitive standpoint is the headcount. I think it's 4 or 5 gigawatts. It's 2,700 heads for just cell and module. We are on a road map that will be 14 gigawatts of fully vertically integrated. So think about that from the production of the poly-silicon all the way forward. And our entire head count for 14 gigawatts in the U.S. will be comparable to that 2,700. So on a head count basis, we're about -- they're about 2.5x higher on a headcount basis than we are. That…

Your next question comes from the line of Joseph Osha from Guggenheim Partners. Please go ahead.

Thank you and hello, everyone. Happy Halloween. Following on the previous question, assuming that most of what we see in the U.S. is going to be modules sourced with domestic cell, but almost certainly overseas wafer and poly. Based on what you see right now, can you see those suppliers managing to meet domestic content requirements under the IRA? And if so, just why we're not, I'm curious as to what your thinking is on that?

So as we currently understand the supply chain and the availability of the domestically-sourced components that were identified under the IRA domestic content guidance that was provided. The only and really identifiable component that we believe -- I mean there could be some small stuff like adhesive and stuff like that, but that's not going to move the needle. But most likely, will really tell us a component that will move the needle, and that will drive some meaningful amount of domestic content will be the cell. If you look at this most recent announcement, I think that you said they'll be up and running by the end of '25, which means largely that those cells would be available for production and shipments and then eventually installation to or assembled in the models and then eventually installation on your project in '26. And I believe the requirements under IRA and '26 is close to -- I think -- so they have to -- so you're starting off at 40% domestic content and it steps its way up all the way to 55%. So they've got a window now that by the time they can actually realize the benefit of domestic content that requirements will be at a higher threshold than it is right now. At least the math that we run just looking at the cell and understanding the direct material, direct labor cost crystalline silicone at it will be very difficult for the cell-only domestically sourced module to meet the project level requirements to achieve the domestic content bonus. Series 7, as I indicated, which is the vast majority of our 14 gigawatts of the magnetic production is 100% domestically sourced. Therefore, it qualifies as a domestic product. it will be materially advantaged in enabling of domestic content bonus at the project level versus just a crystalline silicon module with a in domestically sourced sell.

Your next question comes from the line of Vikram Bagri from Citi. Please go ahead. Vikram, your line is live.

Sorry about that. Good evening, everyone. I wanted to ask about capital allocation. At the Analyst Day, we understood that there is some downside to tech CapEx by implementing some processes at the supplier level. Any updates to share there? Also, Alex, you mentioned that repatriating cash, it sounds like, is not the most efficient path to fund CapEx in the U.S. So what the cost of repatriation is. And staying on the same topic, understand that funding buybacks with cash is not on the table yet. I was wondering if repatriating the cash longer term can fund for the buybacks longer term? And then finally, I was wondering if common equity is still off the table completely.

I'll take the first one and then Alex take all the rest of them. So yes, we are still working through with our supplier to enable various coding and capabilities that would resulted in us not having to make substantial capital investments related to our upgrades for our pure technology. Testing is ongoing. What I'll say is the early indications. A long way still ago. I want to make sure it's very clear. It's a long way still to go. -- but early indications on what we've seen so far is very promising that we will be able to find a way to provide -- or to have a supplier provide the coatings to the glass without us having to do on our own. Now look, there's some trade-offs with that such as the CapEx balance is also the opportunity to further optimize the buffer layer, which is what they're putting on to capture better performance at the semiconductor level. So we'll have to continue to assess respective trade-offs. But I would say, at least as of right now, really early innings. I want to continue to stress that there's a pretty positive indication of their capabilities in that regard.

If you think about CapEx, we -- at the Analyst Day, we showed you a CapEx plan for '24, '25 and '26 in sales that was somewhere in the range of $3.5 billion to $4 billion of spend. As Mark just said, there's early indications that there's an opportunity potentially for some of the technology-related CapEx come down a little bit. However, you think about the near term, the majority of the spend for 2024 is not related to that capacity expansion, R&D facility enters maintenance and sustaining CapEx, so the guide that we've talked about in the Analyst Day of 1.6%, 1.9% for next year. It doesn't have a lot related to that technology a little bit. As you get into the out years, there's more technology related. So if there is an opportunity to bring that down, it's going to be more in back end of '25 and '26. So as we look through next year's capital standard program, still a significant CapEx program that we're looking at. And I think to have fun there, if you go back to the tax reform in 2017, what that effectively did was you paid a one-time transition tax, which is the equivalent of paying federal taxes to all repatriating the money. So the federal expense is basically done. However, there would be state local tax implications of bringing money back. So today, we're certain that we permanently reinvest our capital offshore. If we were to change that assertion and bring capital back, there wouldn't necessarily be a tax impact to the capital pullback as you would see and impact that depends on the P&L at the time to change that search. So I haven't given the number of what that would be, but there would be some potentially significant stable level tax indications of doing that at the time. In terms of thinking about the way the funding -- look, what we said right now is what we need is transition capital, temporary capital. I don't see any request. So what we're looking at is things that will help us bridge through the gap between the significant investments we're making now upfront and the timing of receipt of the cash associated with the action for credit. As I said at the Analyst Day, if we had that cash on hand at the same time that we recognize the tax benefit on the P&L, then we wouldn't have this potential challenge in jurisdictional mix and temporary transition timing. But the need for equity I don't see today. Then to your question around buybacks, look, we haven't looked at that. I think we're a long way from being in a position where we need to think about that. We're going into a pretty significant CapEx spend over the next few years. their capital not coming in yet. So we'll think about that when the time comes, but that's not where now we're going to invest inside.

Your next question comes from the line of Colin Rusch from Oppenheimer & Company. Please go ahead

Thanks so much, guys. Can you talk about how much finished goods inventory you exited the quarter with and where you're at right now in terms of the nameplate run rate in India?

So let me sure, Colin. So you want to know the enterprise-wise finished good inventory amount? Is that question not just India, right?

Yes. That's the for the whole company and then understand where you're at in terms of the production run rate in India right now?

Yes. So for the total for the company, we ended up with north of 3 gigawatts in inventory. But right now, as we indicated, we produced about 150 megawatts or so in India. All that is actually an inventory, we don't have the certifications yet to allow us to start shipping. So there was a little spike in inventory part because of that. But it lines up to our -- if you look at our sold volume in the fourth quarter, I think an order to gigawatts or something like that. So that inventory is lining up to our anticipated shipments here in the fourth quarter. But India, as I indicated from a demonstrated capability, they've demonstrated almost 80% of nameplate. We're actually running that right now about a little less than 70% of the nameplate. And look, that's a tremendous result when I look at it because we just started the integrated run with that factory in July, they were three months or so out, they we're making 10,000 modules a day. That was obviously a step function improvements, but it's great to see where demonstrate that ability to make a finished -- 10,000 finished modules on a given day, not just demonstrated capability that we can do that. And we did that from a standpoint of as I referred to, that start-up was largely a cold start. We didn't -- we weren't able to because of our permitting restrictions and things that need to happen. We couldn't really start running and seasoning any of the tools until we got to the point of actually starting the integrator fund and very quickly moved into our plant fall process. So really good results. Hopefully, that's a forward-looking indicator of success that we'll see as we move forward into our Alabama factory and our Louisiana factory. And again, our goal is always to start these factories up sooner and faster than we had the previous one. And I would say, at least indications from Ohio going to India. It was pretty successful so far long way still to go and a lot of work still in front of us, but pretty happy with how that factor is performing right now.

Your next question comes from the line of Ben Kallo from Baird. Please go ahead.

Hey, Mark and Alex. Just on that note. I guess the question is two-fold. What do we think about your customers like breaking contracts as that on happens because soon going to open up a factory in Indiana or something like that. And how do we know that's not risk? And number two, what you said there is the speed to time of your factories, I think, is getting better as they get more automated. And how does that factor into your -- whatever ROIC or however you look at?

Look, Ben, I think we'll -- one of the deals that we just did this quarter I think there may be a press release this week. We added another 500 megawatts on to a deal with partner we have for a while. I think it brings a total of north of 3 gigawatts that we've done with this particular partner. And there's just this relationship and understanding of value propositions that First Solar is able to bring and our ability to deliver certainty against commitments that people look to and want to de-risk their projects. I mean that's their primary focus. These projects are meaningful multiyear investments with a meaningful amount of capital and that are starting to evolve now with higher CapEx dollars for our integration of storage and eventually integration of -- for hydrogen, that at the front end of what you need in order to make that project successful if something has to take bolt-ons that make electrode. Otherwise, nothing happens. And what our partners want from us is certainty. They want us to give them a competitive technology at a great price. That de-risk their projects and allows them a higher level of confidence of delivering against their commitments to their Board and to their shareholders and others. First Solar is able to do that, and we're uniquely positioned. We're also uniquely positioned to provide, we believe, with Series 7, in particular, the highest domestic content qualifying module in the industry to take risk to try to find ways to look at alternative paths so have degrees of uncertainty associated with that. It's not even clear that, that factory that you're referencing will actually be up and running in the time line of which it's been committed. The other thing is a portion of that off-take…

Just about a couple of numbers around the 7 Asian fees. We tenor Analyst Day that about 14% of the megawatts in our backlog at that point was subject to a termination convenience closed. If you look at that, I mean 86% of our alt scenario development that put themselves in a very difficult position because they have ongoing to see an contractual breach, which will make it very hard for them to seek financing and tax equity for a project going forward. But for the vast majority of our backlog, there is no ability to terminate for convenience. For those contracts that we do have that clause, which typically is when we have larger long-dated contracts, and we have a small portion of that contracts where we have subject some of the megawatts to nation book convenience. We then have an agreed fee typically up to 20%, which we look to collect and the idea there being that we could then resell those modules and be at least may follow on that transaction. So just to give you some color on the numbers.

Our final question comes from Andrew Percoco from Morgan Stanley. Please go ahead.

Thank you so much for taking my question. Mark, you sort of answered my question already, but I kind of just want to dive into the cost of capital environment. Obviously, having an impact on the market or the perceived economics of renewable. I'm just wondering if you're seeing any developers or customers that maybe haven't been big for solar customers historically that are maybe turning to your technology because maybe they see your technology and your supply chain as more bankable than someone else? [ph]UFLPA, ADCVD combined with a more expensive cost of capital environment. I'm just wondering if that's becoming a bigger competitive advantage than it maybe was a year or two ago? Thank you.

I think Alex actually referenced it in his section, but if you look at our bookings this last quarter, we highlighted three large contracts that were over a gigawatt at that total booking time. One of them is a return customer that we made an announcement on with Longwood Energy. I think we made that right around September, around the September time frame. But then we announced there was two other new customers. One is an IPP and another is effectively an asset management entity with a portfolio company and multiple developers both new customers. We're very happy with those in the first step of our journey of developing a deeper partnership with those counterparties. Look, they've come to First Solar for understanding of the unique value proposition and what we can provide. Unique value proposition and what we can provide. One of them, in particular, I know who's would have liked to have gotten on First Solar's books earlier. We just didn't have capacity. And so now when they look forward and they see there is some supplies you get out of '27, 28, '29. They want to secure some of that supply. They were lumped even on the books and '24, '25 and '26, in particular, we did it on supply. So yes, I do think that the environment that we're in right now and first solar capabilities to proposition, I think, are more compelling and is driving new customers into our portfolio and our overall contracted backlog, which is now north of 80 gigawatts. I mean just that can reflect on that number. I mean that's a huge multiyear contracted backlog and commitments with dozens of different partners that uniquely understand First Solar and understand the value proposition that we can trade that enable the success of our business model.

And this concludes today's conference call. Thank you for your participation, and you may now disconnect.