First Solar Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 29, 2024

Key Takeaways

  • Robust Backlog: First Solar secured 0.4 GW of net new bookings in Q3, bringing year-to-date net bookings to 4 GW and a total contracted backlog of 73.3 GW through 2030.
  • Manufacturing Milestone: The company achieved record quarterly production of 3.8 GW and inaugurated its $1.1 B Alabama facility, staying on track for over 14 GW of U.S. nameplate capacity by 2026.
  • Q3 results included a $50 M product warranty charge tied to initial Series 7 production issues related to glass cleaning variability and performance margin prediction errors.
  • Next-Gen Technology Launch: First Solar will start CURE production on its Ohio lead line in Q4 and commission a perovskite development line to advance its thin-film roadmap.
  • The company sent infringement notices to peers over its Topcon patent portfolio and won a Chinese patent reexamination case, reinforcing its IP position.
AI Generated. May Contain Errors.
Earnings Conference Call
First Solar Q3 2024
00:00 / 00:00

There are 9 speakers on the call.

Operator

Good afternoon, everyone, and welcome to First Solar's Third Quarter 2024 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.

Operator

I would now like to turn the call over to First Solar Investor Relations. You may begin.

Speaker 1

Good afternoon, and thank you for joining us. Today, the company issued a press release announcing its Q3 2024 financial results. A copy of the press release and associated presentation are available on First Solar's website at investor. Firstsolar.com. With us today are Mark Whitmark, Chief Executive Officer and Alex Bradley, Chief Financial Officer.

Speaker 1

Mark will provide a business and technology update. Alex will discuss our bookings, pipeline, quarterly financial results and provide updated guidance. Following their remarks, we will open the call to 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 statements contained in today's press release and presentation for a more complete description.

Speaker 1

It is now my pleasure to introduce Mark Whitmore, Chief Executive Officer. Good afternoon and thank you for joining us today. As we approach the end of 2024, we remain pleased with the progress made across our business navigating against the backdrop of industry volatility and political uncertainty with a continuous focus on balancing growth, profitability and liquidity.

Speaker 2

As noted at our Analyst Day in late 2023 and our previous earnings call, our story is about the value of long term strategic decision making underpinned by differentiated technology and business model, which endeavors to drive value creation for our shareholders and partners. We expect that this disciplined long term approach will allow us to work through the outcomes of the upcoming U. S. Elections as well as continued volatility across the solar manufacturing industry. Beginning on Slide 3, I will share some key highlights from the Q3.

Speaker 2

From a commercial perspective, we continued our highly selected approach to contracting with a net 0.4 gigawatts of new bookings since our last earnings call. This brings our year to date net bookings to 4 gigawatts and our total contracted backlog to 73.3 gigawatts with order stretching through 2,030. From a manufacturing perspective, while we're pleased with record production of 3.8 gigawatts in the quarter, our financial results were impacted by product warranty charge of $50,000,000 due to manufacturing issues, which we have identified and taken actions to address related to the initial production of our Series 6 Series 7, excuse me, product, primarily attributed to variability in the effectiveness of the glass cleaning process at the beginning of our production line and an error in our process of predicting the engineering performance margin. We inaugurated our new $1,100,000,000 Alabama facility, which when fully scaled adds 3.5 gigawatts of vertically integrated nameplate solar manufacturing capacity. The start of commercial operation at the Alabama facility along with our under construction Louisiana facility, which remains on track to begin operations in the second half of twenty twenty five, keeps us on course to achieve our projection of over 14 gigawatts of annual U.

Speaker 2

S. Nameplate capacity and over 25 gigawatts of global nameplate capacity by 2026. This growth is expected to support an estimated 30,000 direct, indirect and induced jobs in the U. S. Alone, representing $2,800,000,000 in annual labor income, demonstrating the significant contribution to our nation's economic growth that high value solar manufacturing can provide.

Speaker 2

Turning to technology. As planned, we are launching Cure production at our lead line in Ohio in Q4 of this year. We intend to launch this production in a phased approach, initially producing and selling approximately 0.4 gigawatts of CURE product through Q1 of 2025. Upon successful field performance validation following the deployment of this volume of sold CURE product, we intend to permanently convert the Ohio lead line to CURE in Q4 2025 as well as replicate CURE across the fleet, beginning as scheduled with our Vietnam and Third Ohio facilities and time to start capturing upside from our contractual revenue adjusters. In addition, at our new perovskite development line in Perrysburg, this quarter will be the first time we'll be able to run technology samples through an automated process that simulates in line manufacturing conditions as we accelerate our efforts to develop the next breakthrough in thin film photovoltaic technology.

Speaker 2

With regard to intellectual property, we have recently sent notification letters to Tier 1 solar manufacturers that we believe are infringing on First Solar's Topcon patent portfolio, which I'll discuss in more detail later in the call. While Alex will provide a comprehensive overview of the Q3 2024 financial results, I would like to highlight our Q3 earnings per share of $2.91 which includes the $50,000,000 product warranty charge referenced earlier. Finally, our leadership in thin film technology and track record of investing in innovation led to First Solar being recognized by MIT Technology Review's annual list of climate tech companies to watch, the only solar technology and manufacturing company to be included in this year's list. Furthermore, we were also proud to make our debut as Times Magazine's World's Best Companies in 2024 list. Moving to Slide 4, we recently published our annual sustainability report and would like to take this opportunity to share a few highlights.

Speaker 2

In our 25th year, we are doubling down on our commitment to the principles of responsible solar, which drives our company's environmental, social and governance strategy, leadership and differentiation. From the health and environmental benefits of achieving greater avoidant emissions through our ultra low carbon solar technology to our long standing leadership in PV recycling and commitment to human rights, transparency and credible third party validation, we continue to establish new standards while challenging the industry as a whole to do better. Over the past year, we continue to drive environmental, social and governance progress as part of our culture of continuous improvement. We successfully reduced our water and waste intensity per watt produced and increased the percentage of women in our workforce in 2023 relative to the preceding year. We continue to build on our long standing leadership position in PV Recycling in 2023, achieving a global average material recovery rate of 95% across our recycled facilities.

Speaker 2

Today, we operate high value recycling facilities in the U. S, Germany, Malaysia, Vietnam and Invito. A shift to producing verifiable ultra low carbon solar is needed to ensure that the global PV manufacturing industry does not undermine its role in its fight against climate change. Although the industry currently accounts for a small portion of global emissions today, that's changing. A report by Clean Energy Buyers Institute warns that a business as usual approach dominated by energy intensive crystalline silicon would lead PV manufacturing to exceed aluminum manufacturing, currently the 4th most emission intensive industrial commodity by 2024 2,040.

Speaker 2

We are proud to be leading the charge by having the world's first solar modules to achieve EP Climate Plus designation and meet the industry's 1st ultra low carbon solar thresholds for global use. Turning to Slide 5. I would like to address the numerous intellectual property challenges concerning crystalline silicon cell technology that are currently ongoing within the industry. Historically, PBE industry intellectual property claims, particularly related to crystalline silicon technologies and especially among Chinese headquarter producers have been limited and seldom asserted. This has largely been due to the understanding that cell related technology advancements were effectively open source with patents and know how freely shared within the Chinese manufacturing ecosystem.

Speaker 2

Today's intellectual property landscape within the solar manufacturing sector has clearly changed. As shown on Slide 5, a number of leading manufacturers are asserting patent related claims against one another. Notably, a number of these actions are focused on alleged infringement of Topcon patents. As just one example, earlier this month, TRITA filed a Section 337 complaint at the U. S.

Speaker 2

International Trade Commission or ITC against the funds of Renergy and Adani. According to the complaint, Trina is seeking to exclude Topcon Solar cells, modules and components from importation into United States due to alleged patent infringement, which the ITC is now investigating. As disclosed earlier in the Q3, First Solar also possesses a Topgum patent portfolio through our acquisition of TetraSun in 2013, which we have begun to leverage as part of our ongoing efforts to develop the next generation of PV technologies. Our Top Chem portfolio includes patents and patent applications in the United States, Australia, Canada, China, Europe, Hong Kong, Japan, Mexico, Malaysia, Singapore, South Korea, Vietnam and the United Arab Emirates, with patent terms extending to 2,030. Note regarding the India market, although Versailles does not possess a top con patent in India, several jurisdictions where we do have patents are sourcing India bound cell manufacturing and exports.

Speaker 2

We believe we will be able to assert our patent rights in these jurisdictions against manufacturers and exporters of infringing India bound products. While a number of other market participants are claiming they too own Topcon patents, it is important to note that as with any mature technology, it is not unusual that multiple key patents may be held by multiple and related parties. Without ownership or license covering every relevant patent used in the manufacturing process, a manufacturer does not have the freedom to produce and sell an otherwise infringing product. Since our April excuse me, since our July announcement regarding First Solar's Topgum patent portfolio, we have advanced our investigation into several leading CRISPR silicon solar manufacturers for potential infringement of our patents. The result of these efforts has enhanced our conviction that we possess fundamentally valid and enforceable patents in relation to Top Gun cell technology.

Speaker 2

To that end, have recently begun sending letters to various solar manufacturers shown on Slide 5 under the letterhead of a law firm with one of the world's leading intellectual property practices, providing notice to each recipient that they are using First Solar's Top Gun patents without a license and reserving First Solar's rights in their entirety. We are currently in negotiation with multiple interested parties and rights to our Top Gun patent portfolio. Finally, during the Q3, we achieved a victory upholding the validity of our Chinese Top Gun patents in the patent reexamination and invalidation department or PRID of the China National Intellectual Property Administration, which is the patent office in China. The PRID upheld the validity of all 17 claims of our Chinese Topcon patent against a number of asserted prior art references. Together with our aforementioned outreach to manufacturers aimed at discussing potential structures to authorize the actual or planned use of our Topcon patents.

Speaker 2

Our recent victory in China provides 3rd party validation of the strength of our Topcon patent portfolio. First Solar has long held a commitment to fundamental concepts of respect for the integrity of property rights. As shown on Slide 5 and reflected in numerous public announcements and public reporting over the past year, First Solar is not alone in seeking to protect its intellectual property rights. With a number of other leading manufacturers taking actions to protect their rights as well. To the extent these manufacturers, the majority of which are Chinese based, continue to report significant financial loss in their race to the bottom, it is reasonable to expect that they will continue to aggressively assert these claims.

Speaker 2

We believe the IP based uncertainty surrounding crystalline silicon manufacturers' freedom to manufacture and sell top consolar products and the potential complications for a PV project utilizing potentially infringing solar cells should be taken in consideration by developers, project owners and PPA offtakers as well as debt and tax equity financing parties. In addition, we believe the current intellectual property landscape, particularly as it relates to Topcon cell technology, underscores 1 of First Solar's key competitive initiators of delivering a unique proprietary homegrown cadmium telluride semiconductor technology in contrast to the highly commoditized crystalline silicon modules. I'll now turn the call over to Alex to discuss our bookings, pipeline and financials. Thanks, Mark.

Speaker 3

Beginning on Slide 6, as of December 31, 2023, our contracted backlog totaled 78.3 gigawatts with an aggregate value of 23,300,000,000 dollars Through September 30, 2024, we had recognized 9 gigawatts of sold volume and contracted an additional 3.5 gigawatts. This includes a reduction to our bookings of 0.4 gigawatts due to the termination of a contract with Plug Power, a former corporate customer who experienced delays to their project, as first noted on our earnings call in February of this year. After significant attempts to negotiate a mutually beneficial solution failed and we were unable to renegotiate the contract to our satisfaction, in Q3 we elected to terminate the contract and pursue our contractually agreed termination remedies. This brings our total backlog to 72.8 gigawatts at quarter end with an aggregate value of 21,700,000,000 implying an ASP of approximately $0.298 per watt, excluding adjust as where applicable. Since the end of the third quarter, we've entered into an additional 0.5 gigawatts of contracts, increasing our total backlog to 73.3 gigawatts.

Speaker 3

What about ASPs for our 0.8 gigawatts of gross bookings since the prior earnings call? This includes approximately 180 megawatts of domestic India shipments at an ASP of approximately $0.19 per watt. Given the India market price environment, I'll further discuss our strategy as it relates to sales of our India produced product shortly. It also includes a booking for 50 megawatts of aged low bin inventory that would not be usable by our traditional utility scale customer base and that would otherwise be scrapped to be sold for a nontraditional contracting arrangement. Structure is a true non contingent sale with a module distributor at an initial ASP of $0.05 per watt.

Speaker 3

We expect to receive upside revenue sharing based on the final sale price, which will be reflected as incremental revenue at the time of sale to the end user. The remaining approximately 5 60 megawatts of bookings to our traditional U. S. Utility scale customer base is at an ASP of approximately $0.304 per watt excluding adjusters or up to $0.32 per watt assuming the realization of adjusters it relates to the U.

Speaker 4

S. Utility scale market, the updated

Speaker 3

domestic content bonus safe harbor guidance issued by the Department of Treasury and IRS in May 2024, sets out a more practical points based calculation rather than a cost based calculation for a renewable energy project to qualify for the bonus, placing a high value on vertically integrated manufacturing that utilizes domestically procured components, the profile exemplified by First Solar's growing domestic manufacturing operations. Given the high domestic content embedded in our U. S. Produced Series 6 and Series 7 modules, which critically feature a domestically manufactured cell, which may incorporate domestic components for all the points eligible components specified in the elective safe harbor in the May 2024 updated guidance. Our production fleet greatly enables our customers' ability to satisfy the domestic content bonus criteria.

Speaker 3

Under the new elective safe harbor, there are opportunities for First Solar to optimize its supply chain and allocation strategy, including with deliveries to customers and modules produced across our global fleet. This approach allows us to optimize our production days, while ensuring that our customers receive the points necessary for them to qualify for and critically finance the domestic content bonus. To that end, during the quarter, we began affecting this optimization strategy to amend contracts, while maintaining the ASP under the original module sale agreement. A substantial portion of our backlog includes opportunities to increase the base ASP through the application of adjusters, if we realize achievements within our current technology roadmap as of the expected timing for delivery of the product. At the end of the Q3, we had approximately 37.3 gigawatts of contracted volume with these adjusters, which if fully realized could result in additional revenue of up to approximately $700,000,000 or approximately $0.02 per watt, majority of which will be recognized between 2026 2028.

Speaker 3

This amount does not include potential adjustments, which are generally applicable to the total contracted backlog, both to the ultimate module bin delivered to the customer, which may adjust the ASPM and the sales contract upwards or downwards and for increases in sales rate or applicable aluminum or steel commodity price changes. Reflected on Slide 7, our total pipeline of potential bookings remains strong with bookings opportunities totaling 81.4 gigawatts, an increase of approximately 0.8 gigawatts since the previous quarter. Our mid to late stage bookings opportunity decreased by approximately 5.1 gigawatts to 23.5 gigawatts and that includes 20.9 gigawatts in North America and 2.3 gigawatts in India. Within our mid to late stage pipeline, 3.9 gigawatts of opportunities that are contracted subject to conditions precedent, including in the U. S, a 6 20 megawatt module supply grid with a customer that we supply in power to a hyperscaler, as referenced on our last earnings call, and 0.8 gigawatts in India.

Speaker 3

As a reminder, signed contracts in India would not be recognized as bookings till we receive full security against the offtake. And note that we've reduced our opportunities that our contract is subject to conditions precedent for India by 0.4 gigawatts as a result of terminating a defaulted module supply agreement with an India affiliate of a European oil major, who is reportedly in the process of selling this business. Including our revenue for the Q3 is a contractual termination payment associated with the customer default under this contract. As stated on previous earnings calls, given our diminished available supply through 2027, the long dated timeframe into which we're now selling, the need to align customer project visibility with our balanced approach to ASPs, payment security and other key contractual terms, and given the uncertainty related to policy environment due to the upcoming U. S.

Speaker 3

Election, we'll continue to leverage our position of strength in our contracted backlog and be highly selective in our approach to new bookings this year. We intend to continue forward contracts with customers who prioritize long term relationships and appropriately value our points of differentiation. On Slide 8, I'll cover our financial results for the Q3. Net sales in the Q3 were $900,000,000 a decrease of $100,000,000 compared to the Q2. Decrease in net sales was driven by a 12% decrease in the volume of megawatts sold and the aforementioned increase in our Series 7 product warranty liability, partly offset by expected payments associated with contract terminations in the U.

Speaker 3

S. And India. Gross margin was 50% in the 3rd quarter compared to 49% in the 2nd quarter. The increase was primarily attributable to higher contract termination payments and a higher mix of modules sold from our U. S.

Speaker 3

Factories, which led to $264,000,000 of Section 45X tax credits during the period, partially offset by the aforementioned increase in our Series 7 product warranty liability, higher underutilization charges and additional inventory reserves for lower bin modules manufactured at our international factories. During the Q3, we experienced certain planned downtime for QR technology upgrades as well as the unplanned downtime for the CrowdStrike event and various other operational challenges, which I'll describe shortly and equipment repairs. We also incurred certain underutilization charges at our new factory in Alabama as we began ramping production during the period. SG and A, R and D and production start up expenses totaled CAD 123,000,000 in the 3rd quarter, decrease of approximately CAD3 1,000,000 compared to the 2nd quarter. This decrease was primarily driven by lower R and D testing expenses as we sought to maximize production throughput, while transitioning certain testing activities to our recently dedicated Jim Nolan Center For Solar Innovation, along with a reduction in incentive compensation expenses.

Speaker 3

Our Q3 operating income was $322,000,000 which included depreciation, amortization and accretion of $111,000,000 ramp costs of $25,000,000 production start up expense of $27,000,000 and share based compensation expense of $7,000,000 3rd quarter other income was $5,000,000 which was consistent with the 2nd quarter. Tax expense for the 3rd quarter was $14,000,000 compared to $28,000,000 in the 2nd quarter. This decrease was driven by higher forecasted income in lower tax jurisdictions and the 2nd quarter change in our position related to reinvesting the accumulated earnings of a foreign subsidiary, which resulted in additional tax expense in the prior period. Combination of the aforementioned items led to 3rd quarter earnings per diluted share of $2.91 Next turn to Slide 9 to discuss select balance sheet items and summary cash flow information. Our cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities ended the quarter at $1,300,000,000 compared to $1,800,000,000 at the end of the prior quarter.

Speaker 3

This decrease was primarily driven by capital expenses associated with our new U. S. Factories in Alabama and Louisiana along with an increase in working capital. Total debt at the end of the 3rd quarter was CAD582,000,000 an increase of CAD23 1,000,000 from the 2nd quarter as a result of higher working capital loans in India, which helps support the continued ramp of our new plant in the region. Our net cash position decreased by approximately $500,000,000 to $700,000,000 as a result of the aforementioned factors.

Speaker 3

Cash flows used in operations were $54,000,000 in the 3rd quarter and capital expenditures were $434,000,000 during the period. Continuing on to Slide 10, I'd like to provide some context to our financial guidance update. Our full year P and L guidance first issued in February remained unchanged through our Q1 and Q2 earnings calls in May July respectively. However, in July, we noted that following the termination for convenience of 0.4 gigawatts of contract capacity by a European power and utilities customer, who was selling a portfolio of U. S.

Speaker 3

Development assets, we expected volume sold, revenue and net cash guidance to be towards the bottom end of our guidance range. As it relates to our updated guidance, there are several drivers of the forecast changes. Firstly, since our last earnings call where we referenced the global CrowdStrike IT outage, which temporarily idled our fleet for approximately 2 days, we have experienced a number of additional operational challenges. These include hurricanes, Frontline, Helene and Milton, which made landfall across the Southeastern United States, impacting not only module deliveries within the region, but also our Louisiana factory construction, as well as causing logistical impact with our distribution centers in South Carolina and Texas. These distribution centers along with other transport infrastructure including the ports themselves were also affected by the International Longshoremen's Association strike.

Speaker 3

In addition, an external security alert at our Ohio location, while ultimately unsubstantiated, resulted in full evacuation of the facilities with adverse consequences to schedule production output. Each of these events, whilst not individually material, have in totality had an adverse impact on operational and financial performance. Secondly, as it relates to India, as referenced on both our Q1 and Q2 earnings calls, we continue to remain concerned by Chinese dumping into the Indian market, which has led to an artificially low and challenged ASP environment for domestic sales. In response to this behavior, which threatens India's aspirations to end its reliance on an adversary by developing a domestic manufacturing base that serves a domestic market, the Indian Ministry of Commerce and Industry has recently initiated an anti dumping investigation into solar cell imports from China. However, despite this investigation, domestic India ASPs remain depressed as a function of this dumping behavior and as reflected by the approximately $0.19 per watt ASP for our recent India bookings discussed earlier.

Speaker 3

With such artificially depressed ASPs in the India market, we see the updated safe harbor guidance, the IRA domestic content bonus released in May 2024, providing us with an opportunity to shift India production from fixed tilt to tracker product and shift a portion of our future India manufactured product into the U. S. Market at higher ASPs. Net and incremental production and freight costs, we expect shipping this product to the U. S.

Speaker 3

To be gross margin accretive relative to domestic India sales. However, given transit and delivery times to the U. S. Market, we expect this to reduce the volume of products produced by our India factory and sold in 2024 by approximately 0.9 gigawatts. Thirdly, and as again previously noted on our earnings call this year, we have seen some requests from customers to shift delivery volume timing out as a function of project development delays.

Speaker 3

We continue to work with our customers to optimize the delivery schedules for their contracted volumes to the extent we are able to accommodate them. This has been a driver of the back ending of revenue and gross margin to Q4 of this year. In some cases, we are enforcing our contractual rights to ship modules to warehouses in the event that customers are not ready to receive the product as scheduled under the contract. In other cases, we are able to accommodate schedule shifts either through reallocation to another customer or through interim storage of the module. Despite the termination of the plug power contract, the 0.4 gigawatts of modules originally assumed to be sold this year and a recent request increase for delivery schedule flexibility, we have largely been able to mitigate the impact to our sold volume guidance, which is modestly reduced by approximately 0.3 gigawatts.

Speaker 3

Fourthly, we continue to enforce our contractual rights in the event of contractual breach. The aforementioned Plug Power contract termination resulted in a termination payment entitlement recognized as revenue in the 3rd quarter. Additionally, during the quarter, we enforced our termination rights under 2 contracts in India, which also resulted in termination payment entitlements recognized as revenue in Q3. While cash and other liquid security deposits cover a portion of these payments, in order to collect the balance owed, we expect to litigate. To that end, we have filed a complaint against Plug Power and commenced arbitration proceedings against 1 Indian customer, and we anticipate initiating arbitration proceedings against the 2nd Indian customer, in all cases seeking to enforce our full termination payment rights on the respective contracts.

Speaker 3

The combined effect of these impacts would serve to reduce our full year 2024 volume sold revenue and net cash guidance numbers below those provided on our Q2 earnings call in July, with the contractual termination payments largely offsetting the reduced sold volume, resulting in gross margin, operating income and earnings per diluted share guidance within the previous ranges provided. So with this context in mind and together with the impact of the aforementioned €50,000,000 product warranty charge related to the initial production of our new Series 7 products, our updated guidance ranges are as follows. We expect volumes sold of 14.2 to 14.6 gigawatts, resulting in net sales guidance of between $4,100,000,000 $4,250,000,000 Gross margin is expected to be between $1,950,000,000 $2,000,000,000 dollars which includes $1,020,000,000 to $1,050,000,000 of Section 45x tax credits and $60,000,000 to $75,000,000 of ramp costs. SG and A expenses are expected to be $445,000,000 to $475,000,000 which includes $185,000,000 to $195,000,000 of SG and A expense, dollars 190,000,000 to $200,000,000 of R and D expense and $70,000,000 to $80,000,000 in production startup expenses. Operating income is expected to be between $1,480,000,000 and $1,540,000,000 and is inclusive of $130,000,000 to $155,000,000 of combined ramp costs and plant startup expenses and $1,020,000,000 to $1,050,000,000 of Section 45x credits.

Speaker 3

We expect interest income, interest expense, other income and tax expense to net to a total expense of approximately $80,000,000 This results in a full year 2024 earnings per diluted share guidance range of $13 to $13.50 Capital expenses are forecasted to be between $1,550,000,000 $1,650,000,000 a reduction of €250,000,000 to €350,000,000 from the prior forecast, largely as a result of the timing of payments related to capacity expansion and R and D initiatives. Our year end 2024 net cash balance is anticipated to be between €500,000,000 and €700,000,000 as a result of the aforementioned changes to volume sold and revenue and the timing of receivables, partially offset by reductions in capital expenditures. Now I'll hand the call back to Mark for his concluding message.

Speaker 2

All right. Thanks, Alex. As you all know, a week from today, U. S. Voters go to the polls and our industry is focused on the results and potential implication of those results.

Speaker 2

While we cannot predict the outcome of the upcoming elections, we are optimistic about the impact of our work to constructively engage with and inform policymakers across the political spectrum about the economic and strategic benefits of high value domestic manufacturing. We are further optimistic that regardless of the results, we are continuing to build a company that endeavors to exit this decade in a stronger position than when it entered it. As we've said before, we are not immune from the longstanding challenges resulting from the continued irrational pricing and reckless capacity expansion behavior of the Chinese dominated crystalline silicon industry. And we must remain nimble in the face of near term challenges presented by matters such as project development delays, particularly here in the United States market. That said, by continuing to execute a strategy of disciplined growth underpinned by demand and resiliency in our order backlog and when necessary and only after collaborative spirited efforts of acceptable accommodations cannot be reached.

Speaker 2

We will vigorously enforce our commitments. By continuing investment in capital and research and development to advance the next generation of thin film photovoltaics, which we believe presents the future of this industry by advancing technology leadership through the development of strategic intellectual property portfolios and leverage those rights and by our long standing advocacy for the development and enforcement of laws that level the playing field for domestic high value manufacturing that today are arguably within the central policy position of both sides of the aisle. By continuing to deliver upon our commitments and our history of providing certainty to our customers, which includes making efforts to do right by our customers on those occasions when we fall short of delivering on those commitments. And by adhering to our decision making framework of balancing growth, profitability and liquidity, we believe First Solar is positioned to not only maintain, but to build upon our more than 25 years of industry leadership. To conclude, Alex will now summarize the key messages from today's call on Slide 11.

Speaker 3

We continue to be disciplined in our approach to contracting with 4 gigawatts of net bookings year to date leading to resilient contracted backlog of 73.3 gigawatts. Our continued focus on manufacturing technology excellence resulted in a record quarterly production of 3.8 gigawatts. Our Alabama factory commenced operations and our Louisiana factory remains on

Speaker 2

schedule. From a technology perspective, we expect

Speaker 3

to launch our cure lead line and commission our perovskite development line in Q4 of this year. We also sent letters to certain solar manufacturers providing notice that they're using First Solar's Topcon patents without license and reserve First Solar's rights in their entirety. Financially, we earned $2.91 per diluted share. We ended the quarter with a gross cash balance of $1,300,000,000 or $700,000,000 net of debt. We're revising our full year 2024 guidance with full year earnings to diluted share guidance of $13 to $13.50 And with that, we can do our prepared remarks and open the call for questions.

Speaker 3

Operator?

Operator

Thank you, sir. We'll go first to Philip Shen, ROTH Capital Partners.

Speaker 5

Hey guys, thanks for taking my questions. First one is on the chips ITC. There was news recently that wafer and ingots facilities can take advantage of that in the U. S. And our check suggests that you guys have a door to perhaps tap into that.

Speaker 5

And so I was wondering if that's the case, do you think the recent facilities that you've brought online over the past couple of years could qualify? And then also if you can opine on whether or not you think you can get that, that'd be great. Shifting over to bookings price, it sounds like it was $0.304 per watt on the incremental 400 megawatts. That's down a touch from the prior quarter. Can you comment on why and then what do you expect there?

Speaker 5

And then finally, sorry to throw so many, with India, we understand what you're doing with the unsold modules. But on a go forward basis, do you think you lower the India facility utilization? Or do you think you what is the utilization at now? And do you continue to operate it at that level or even higher ahead? Thank you, guys.

Speaker 2

All right, Phil. I'll take the first and the last one. I'll let Alex talk about the bookings ASP. As it relates to the TIF ITC and the applicability to Wake facilities that was recently announced, clearly, we're very much engaged and aware and we're evaluating the potential capability to our facilities. What I would say in general is the spirit of what we've seen in a lot of the intent of the IRAs to be technology neutral and to allow for various technologies to receive the same similar types of benefits.

Speaker 2

We saw that on the manufacturing tax rate, the 45x, right? So there's $0.17 or so value for the equivalent journey from a wafer to a cell to a module for crystalline silicon to other technology like thin films, which is whether it's today's cad tel thin film or the future of perovskite thin film. So the intent and spirit was to provide equivalency across those respective technologies, not advantage one technology over the next. Clearly, we're very happy that this decision has been made. I think it helps create that vertically integrated supply chain that we believe we need to make this enduring.

Speaker 2

And that was the intent of IRA is to enable this opportunity to transition to a domestic industry and to be vertically integrated in the supply chain. We will continue to be actively engaged and to see to the extent that we can qualify for those benefits and potentially happen to be applicable to our Alabama and Louisiana facilities in particular. I'll take the India conversation and then pass it back to Alex on the bookings ASP. Look, as it relates to India, we're in a transitioning period for that domestic market. There is obviously China doing everything it's doing globally and it's not discriminating on any particular market and it has such excess capacity and it's dumping at extreme levels right now that does make it difficult for domestic industries to compete with imports.

Speaker 2

What we're seeing in India is cell and wafer in particular is at levels that make it uneconomical to manufacture domestically and to compete with the value of those imports even in the case where there's tariffs that are associated with them. That's starting to change. There's actually an antidumping case that's being taken up right now on cells to evaluate that exact behavior and impact. And we're optimistic that that will move forward in a constructive way. As we've mentioned before that there's also the equivalent of the approved list of module manufacturers that the intent is to now move that to cell manufacturers that would create a non trade barrier for imports coming from China in particular.

Speaker 2

The intent is that that would be up and running by the end of Q1 of 2026. So they're doing a lot of things to transition the market, which we think is healthy. We will continue to be focused on the domestic market and we will be selective in the opportunities in which we engage if we can get prices which we believe are appropriate for the technology and value that we're creating. In the interim though, we have the opportunity to export that same technology, but for the mounting system. So the product in India is largely fixed tilt.

Speaker 2

We will be making a tracker product to ship it into the U. S. Market. So again, the mounting structure is slightly different, but it's actually the same technology, same product. We'll be shipping that into the U.

Speaker 2

S. Market. And we're optimistic that we can take between the combination of getting strong prices in the U. S. Market and respectable pricing and being selected and limited opportunities in India that will continue to run India at its full utilization.

Speaker 2

Today, as we transition to the tracker product, it is running at its full utilization. The tracker the fixed tilt product we were running in Q3 was at a level below the full torsion. And so we did see underutilization charges for that India facility. But where we are today, it is running at full utilization to make a tracker product that will support the U. S.

Speaker 2

Market.

Speaker 3

Yes. And Phil, on the ASPs, I wouldn't read into anything on where that 30.4 ASP is, just given how small a volume we're booking. And that's a function of that disciplined selective approach that we talked about. But just to clarify the volumes, I think you said 0.4. So it's 0.4 gigawatts of net bookings.

Speaker 3

We did have the plug de booking in there of 0.4. So it's 0.8 of gross bookings. Within that, there's about 180 megawatts of India volume and then about 50 megawatts of volume that is going into the U. S, but it's a lot of old low bin inventory that otherwise would likely have been scrapped. And we're selling that under a construct where it's recognized today as a booking at a very low ASP, dollars 0.05 But what will ultimately happen is the person we're selling that to will then go out and sell that into the market and there's a revenue sharing.

Speaker 3

So ultimately, we'll get a much higher price for that. But today, it gets recognized at that lower number. So what you're seeing is actually about 0.6 gigawatts or so, a little under 600 megawatts of new U. S. Bookings and that's what that 30.4 relates to.

Speaker 3

And again, that number is also pre adjusted. So with adjusted on top of that, a lot of that volume being booked into a time frame where we will have technology adjusted that goes up to $0.32

Operator

We'll take our next question from Brian Lee, Goldman Sachs.

Speaker 4

Hey guys, good afternoon. Thanks for taking the questions. Maybe a follow-up to Phil's question for you, Mark. It might be tough to answer specifically, but on the Q1 call, you guys have said, I think it was 2.6 gigawatts of production in India shipping a gigawatt plus to the U. S.

Speaker 4

And then presumably the rest shipping domestically in India. Clearly that calculus is changing here. So can you give us a sense of what that mix would look like going forward and then how many quarters it does take to reengineer and then reallocate that India volume back to the U. S. Where it sounds like you're going to take advantage of better pricing.

Speaker 4

And then just on the rest of your guidance, it seems if you do the math, it's 5.4 gigawatts or so in that neighborhood of sold volume in Q4. It's significantly higher than any run rate you've seen in the past would be a record. How derisk do you see that volume still level, especially in the context of you mentioning some push outs and things that maybe aren't staying on customer timelines as you might have initially anticipated? Thanks guys.

Speaker 2

Yes. So Brian, as it relates to India and ability to flex and to move from a fixed to a tracked product, it's the timing from within the factory, you've got a day or so, couple of days of downtime. So to move, again, the only delta we're making is the mounting structure on the back. So instead of being a steel rail that accommodates a fixed structure, it's a steel rail that accommodates a tracker mounting. There is some timing that you have to work with your supply chain to make sure that your rail supplier in particular pivots from one spec to another spec.

Speaker 2

So there's a little bit of notice to our supply chain to give them a heads up. But the ability to toggle back and forth is we got to a point where we're pretty nimble now. We worked a lot on that to make sure that we could our back end assembly process and take there and our pack out to accommodate the flexibility in programming the robots as well as the automated guided vehicles and everything to toggle back and forth very quickly depending on

Speaker 1

the mix of product that we want

Speaker 2

to manufacture. So we've gotten pretty good at doing that. And Ryan, in terms of the opportunity, the way especially with the new point system, we've got we'll have 14 gigawatts of Series 7 capacity. And it's very easy to blend Series 7 domestic with Series 7 international at the same in the same projects, right? They're the same products.

Speaker 2

There's no uniqueness of either product. As we transition across our roadmap, we'll have to be mindful of how we transition domestic factories with international factories. So if we make a BiFi product with Series 7, we're going to want to make sure that at least for the blending of the across the geographies, we'll want to make sure India is also producing a BiFi product because it's uneconomical really or it's just not ideal to make a BiFi product domestically and a monofacial product internationally and then put them in the same projects and it's not the ultimate outcome of what you would try to accomplish. But ability is flexible. We intend to run the factory full out probably if I had to give you a view longer term given what we're seeing on pricing that things do stabilize and move in a more positive direction.

Speaker 2

I would say over the next couple of years, it's probably going to be less than a gigawatt for sure in India and the balance of it's going to come into the U. S. Market. But we'll optimize that against underlying fundamental demand in each respective market. As it relates to the Q4 and the implied sold volume, but there's continued risk each and every day with scheduled movements and shifts and what have you.

Speaker 2

But we have coordinated with our customers to understand where they are in terms of their projects for receipt of modules. And to the extent that they are seeing some delays on their part, we're moving towards moving those into warehouses. But in some cases, it may be in our warehouse and then charging the customer for that warehousing cost or it could be at their respective warehouse. And it's just under the premise of enforcing the underlying rights of the contract. As Alex indicated and I indicated in my remarks as well, we will continue to be accommodated and flexible where we can.

Speaker 2

But at this point in time, given the inventory build that we have over the first three quarters of this year, we need to move that inventory to other locations and hopefully into projects, but it's not to a customer located warehouse.

Speaker 3

And Brian, just a couple of other comments on that. So as we begin ramping up QA at the back end of this year, we are assuming that volume gets sold. Now it's not a significant amount of volume, but as with any ramp, you've got risk around early production. And just given it's U. S.

Speaker 3

Volume and has IRA dollars attached to it, even small amount of volume there can have some more material impact to dollars. So that's one risk. And the other I would say is, as we noted on the call, we have seen operational challenges, a lot of those from outside events, including weather events. And so as you start to ship more and especially we look at the back end of the year, any event like that can have a greater impact as we're trying to get more product out the door. But it goes to 2 other things just to bear in mind as we think through the guidance for Q4.

Operator

Up next, we'll hear from Julien Dumoulin Smith, Jefferies.

Speaker 6

Hey, good afternoon team. Thank you guys very much. Appreciate it. If I can follow-up on a couple of things. First, small detail coming out of the queue just with respect to the S7 manufacturing warranty piece, kind of alluded to some ongoing risks.

Speaker 6

Have you fully remediated the backdrop here around the $50,000,000 warranty liability? Just wanted to get a little bit more color there and more specifically comfort level on resolving that prospectively. And then if I could do the second question and then related to it. Going back to what you were talking about a second ago with respect to India, just want to understand the Safe Harbor dialogue and what you anticipate doing here. Is there a potential to effectively swap in panels maybe from a different origin than what had been previously contemplated?

Speaker 6

Is this a net increase in overall blending of foreign panels in? Or is this just about providing greater latitude of where those panels are coming from? Just want to make sure I understood exactly what you were saying there. Thank you.

Speaker 2

Yes. Okay. First of all, on the warranty, I'll provide a little bit more color just because there may be other questions as well. Look, so I also want to and I think I may have stumbled over in my prepared remarks and I may have referenced Series 6. And I'm glad, Julien, you picked up at Series 7 and that's clearly what Alex indicated and also what's in our filing.

Speaker 2

So this is a manufacturing issue that's specific to our initial production of Series 7. It is an issue that there's variability in terms of the production process that will impact some models and in some cases it won't impact other models. So in some cases we may see a shortfall in performance. In other cases there may be no underperformance. It's an issue that generally needs to be identified after the modules have been deployed and they're in the field, so we can observe what is happening.

Speaker 2

And then to the extent that there's a shortfall in the field, then we'll bring them in and we'll do lab testing required to determine if there's a warrantable claim or not. There's 2 primary issues both relate up to the start up to of a new technology. The first one and these are more these are manufacturing issues and I want to make sure there's clarity around this. It's not a reflection of anything, any type of defect or performance problem associated with the fundamental device. What happened with our initial start up, we have a process when we drop first piece of glass into the manufacturing process.

Speaker 2

And what we do is we actually grind the edges of the glass and actually on the corners we'll round them. There can be residual chemicals or other particles that can get onto the glass. So the very next step in the production process is to wash it. And Series 7 has a longer we refer to it as a dwell time. So the time between the completion of the grind to when the actual module is washed.

Speaker 2

And as a result of that some of the materials were effectively calcifying onto the glass and we could not properly clean them through the wash process. So this was what ultimately led to what we're starting to see in the field. It's an easy remediation and we have remediated. And we just changed the washing process to make sure that after the grind process that we are properly washing the module and removing all the all the intended particles and any residual chemicals that may come out as part of the grind process. So that's the first one and that has been remediated.

Speaker 2

The other one was effectively referred to it as an engineering performance margin. Anytime when we launch a product, we have to do extensive reliability tests, quality tests, which is done mainly in a lab and a lot of it is done through accelerated testing to determine the prediction of future field performance. This is also data that we share with independent engineers and others as they also as we work through our qualification process for a particular technology or a particular product. What happened here is we effectively had an error in the calculation. So the calculation of the engineering performance margin was underrepresented.

Speaker 2

We found this out through again testing of modules and return from the field and determine that yes, we had an error in our calculation and we had to change our engineering performance margin, which that has been changed as well. So those are the fundamental issues that were identified, have been corrected and remediated in current production right now. We'll obviously not have the adverse implications we had upon the initial launch that we saw with Series 7. Look, I also want to put it in perspective, it's only been a little over a year since we started shipping Series 7. While we do deploy modules into test sites, it is there are only a few dozens of modules that get deployed into a test site.

Speaker 2

And when you have variability in your manufacturing process, you won't really see the complete variation that you have through your production process until the modules are actually deployed into the field. And that's affected what's happened here. And so we've gotten test data now that we've concluded that there are will be incremental charges to our warranty because of those performance issues that effectively escaped our quality operating system. But we've taken corrective action to address and we've taken corrective actions to create a more robust resiliency to our overall QOS system that we have. And again, I want to emphasize this is not fundamental to the device.

Speaker 2

This is simple. One is a calculation there and the other is a manufacturing process that we didn't fully understand as we did work through our change management system, the impact of a lot of dwell time between wash excuse me, grinding wash would have an adverse implication into the field. It did not show up in any of our accelerated testing. It did not show up in any of our performance testing that we do before we ship modules. This is something that only manifests itself into the field.

Speaker 2

We're very happy that we caught it. We will stand behind our technology and address everything we need to with our customers, and we've corrected the problem going forward.

Operator

And we'll take the next question from Kashy Harrison, Piper Sandler.

Speaker 7

Good afternoon. Thanks for taking

Speaker 1

the question. So just two quick ones.

Speaker 7

It feels like perhaps there's going to be a broader strategic pivot towards sending maybe not quite the 25 gigs, but close to the 25 gigs of product eventually to the U. S. In coming years. Based on your discussions with the customers, do you think that the U. S.

Speaker 7

Market will have enough demand to absorb these volumes? And then just one quick follow-up on the CURE plan. Just wondering how we should think about the CURE gigawatts that could be recognized next year, the ASP uplift and then the incremental margins for CURE? Thank you.

Speaker 2

As it relates to the U. S. Market and fundamental demand for in the U. S. Market for the output, you're right.

Speaker 2

I mean, with the current trajectory that we're on and with our contracted backlog, there's a good match between especially across 2025 and 2026 as it relates to available supply and fundamental demand that would consume any of that product that we intend to bring into the Indian market. We were very where we are right now is we're in a very strong position even in 20 27 from a demand standpoint relative to our U. S. Bookings. We do need to think through 20 27 as it relates to incremental U.

Speaker 2

S. Demand or again hopefully getting to a point in time by 2027 where we see a more robust market in India and we get to a more balanced view of supply demand of the production facility in India to accommodate the U. S. Or excuse me, the India market. But I think if we ultimately have half and half, have to bring, let's say, gig 0.5 to gig 0.75 in the U.

Speaker 2

S. Market, at least fundamentally right now, what we're seeing is pretty strong demand in order to make that happen. And again, the nice thing about this is we're still enabling the domestic content value creation with our customers. That's the value that they're willing to pay for. And we also believe that the domestic content criteria will evolve.

Speaker 2

And I think most of you have seen some of the information that's been out there that the wafer there will be some modifications that will include the wafer in terms of the domestic content calculation. Therefore, in order to qualify, you would need a U. S. Wafer in order to get the value of the cell, which means that the module points conceptually will be worth more, at least the value that we contribute because we're totally vertically integrated, which gives us an opportunity to optimize the blend between a domestic and international mix of products. So yes, I think as I look across 2025, 26, we're in good shape.

Speaker 2

We still have to evaluate how things evolve in 2017, but at least our initial take right now is, if India market will be more resilient by 2017, we'll pull some of that demand out of the U. S. Market, but the portion that is targeted to the U. S. Market,

Speaker 3

our current view is as we'd be able to consume that entire demand that we see for 2027. Yes. As it relates to CURE, so we said on the call that there are about $700,000,000 of adjusters, most of which are relevant to 2026, 2027, 2028. So we also said that CURE, we're going to launch lead line at the end of this year. We'll produce just under half a gigawatt of product end of this year into Q1.

Speaker 3

And then we will go and do field performance testing around that product and then Kew will launch again towards the end of 2025 in Phase 2. So that middle period we're doing the field testing, but also that's a period where we wouldn't see significant upside associated with the Cure product, hence going back to producing current product. And then the aim there is to have Cure produced across not just the Ohio plant at the back end of 'twenty five, but moving across the fleet in time to start capturing the upside from those contractual revenue adjusters going into 2026.

Operator

And our final question today will come from Andrew Percoco, Morgan Stanley.

Speaker 8

Great. Thanks so much for taking the question. I guess I want to come back to the guidance for volume sold for the year. It sounds like a majority of the reduction was a result of some of the operational challenges you've had plus some of the India headwinds that you're facing, but didn't hear too much in terms of U. S.-based project delays influencing that guidance.

Speaker 8

Can you maybe just talk a little bit more about what you're seeing from customers in terms of their request for delays? Is the duration getting extended? I think you guys have historically talked about getting requests in a several week time frame for delays. Are you seeing things get pushed 6 months to a year just given the uncertainty of the election? Just hoping to get more context in terms of what you're seeing from customers on the project delay side.

Speaker 8

Thank you.

Speaker 3

Yes. I'll start. Maybe Mark I'll add his color. So on the guide, the low end of the guide before was 15.6%. And we said on the last call that we expect it to be towards the low end of the guide given the termination that we had in Q2.

Speaker 3

We brought the midpoint of the guide down now to 14.4. So it's a 1.2 reduction. Just under a gigawatt of that is related to India. And as I said as we said on the call, a large piece of that has to do with where pricing is in India today. And at the same time, we see the opportunity to bring that volume into the U.

Speaker 3

S. At much better ASPs. So you've got a challenging market in India right now, but at the same time, given the domestic content guidance, we can bring that in and actually see a significant margin uplift associated with that. The challenge though is that we have to produce tracker products. So we have some products in inventory in India, that's fixed tilt product, which will be sold into the Indian market.

Speaker 3

Mark made the comment it only takes a few days to turn the factory over into producing the tracker product. But now producing that, putting on a boat, getting into the U. S, getting it sold, you're not going to see that sold volume hitting this year, which is why that guide came down. As it relates to other product, non India product, we largely managed to mitigate the risks that we've seen throughout the year. So we had the Plug Power termination that was about 0.4 gigawatt impact and actually we're only down 0.3 on non India volume.

Speaker 3

So we managed to mitigate even a piece of that and almost everything else. Now we are shipping some product into warehouses to Mark's comment earlier. I think we said the same in the prepared remarks. In some cases, if customers are not ready or if their project is not ready, we are electing to do that as we can under our contract because we have commitments we've made for the year. But I would say in general, we have seen a little bit more in terms of a few more requests to move product.

Speaker 3

Some of that request has been incrementally longer than before. And generally, we are trying to work with our customers where we can. But we're also sticking to contracts where we need to and enforcing the ability to ship. So I would say there's a little bit more in the U. S.

Speaker 3

I think there's a little bit around interconnection and project delays. I don't think we've really seen financing be an issue in U. S. Projects. It's mostly around other development items.

Speaker 3

As I said, we've largely been able to mitigate that either through shipping to warehouses or through reallocation.

Operator

And ladies and gentlemen, that does conclude our final question today. That also does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.

Powered by Quartr