First Solar's Investor Relations team welcomed everyone to the company's Quarter 2023 Earnings Call. Mark Widmar, the Chief Executive Officer, and Alex Bradley, the Chief Financial Officer, gave an update on the company's financial results and provided updated guidance. They discussed the progress the company has made in the first and second quarters of 2023, such as ramping up production and delivery of their next-generation Series 7 modules and their strong bookings and ASP momentum.

SunPower announced that it will invest up to $1.1 billion in building a new, fully vertically-integrated manufacturing facility in the United States, their fifth in the country. This new facility is expected to be completed and begin production in the first half of 2026 and produce their Series 7 module. This investment will help them grow their manufacturing footprint to 14 gigawatts in the US and 25 gigawatts globally by 2026. This is enabled by their CadTel semiconductor technology, vertically-integrated manufacturing process, decision to locate manufacturing close to demand, and commitment to Responsible Solar. This will help them be a partner of choice for large sophisticated developers and be in a stronger position at the end of the decade than when they started.

First Solar has booked 8.9 gigawatts of net bookings since their last earnings call, with an average ASP of $0.293 per watt, excluding freight costs. Their total backlog of future bookings is 78.3 gigawatts, including 48.5 gigawatts of mid- to late-stage opportunities. In the second quarter, they produced 2.4 gigawatts of Series 6 modules with a top bin class of 475 watts and a manufacturing yield of 98%. Their third Ohio factory has produced 425 megawatts in Q2 and is capable of producing up to 13,000 modules per day. They also announced a limited production run of their first bifacial module panels, which is currently undergoing field and laboratory testing, and they expect to begin lead line commercial production by Q4 2023.

First Solar has pioneered the transparent back contact to enable bifacial energy gains and lower the operational temperature of the bifacial module, resulting in higher specific energy yield. They have also acquired Evolar, the European leader in thin film perovskite and CIGS technology, to develop and commercially scale thin film PV. Construction of their India factory is complete and pre-production testing is ongoing. They are on track to expand and upgrade their Ohio Series 6 factory and their new Alabama facility, which will add 10 gigawatts of annual nameplate capacity in the U.S. by 2025.

The company has committed over $2.8 billion in capital investments to the United States, resulting in the creation of 700 direct jobs and multiple indirect jobs. They are pleased with the Biden administration's guidance on Section 48C, direct pay, tax credit transfers, and domestic content. The direct pay regulations issued during the quarter clarifies that a five-year direct pay period under Section 45X may be elected on a facility by facility basis, which will benefit their previously announced factory in Alabama, and their new factory announced earlier today.

SolarEdge is working with the administration and customers to ensure that domestic content is increased in order to sustainably grow U.S. manufacturing and reshore the clean energy supply chain. SolarEdge is providing customers with the information needed to benefit from the bonus credit for using U.S.-made content. SolarEdge operations use 100% U.S.-made glass and steel components. The Department of Commerce is investigating Chinese manufacturers accused of circumventing U.S. anti-dumping and countervailing duties, and Customs and Border Protection is enforcing the Uyghur Forced Labor Protection Act. SolarEdge believes that the agency needs more resources to ensure the enforcement is extended beyond the handful of high profile Chinese solar manufacturers.

The US is taking a narrow scope of enforcement to allow lesser known solar panel manufacturers to export their products to the US without risk of detention. In Europe, the EU is working towards energy self-sufficiency, though the recent collapse in polysilicon pricing and cheap solar panels may affect the political willingness to deliver a comprehensive legislative solution. Germany's Federal Ministry of Economics and Climate Protection recently launched a request for expression of interest in a plan to build approximately 10 gigawatts of vertically-integrated solar manufacturing capacity in the country. As of December 31, 2022, the US had a contracted backlog of 61.4 gigawatts with an aggregate value of $17.7 billion.

In the past four quarters up to the end of Q2 2023, SunPower has entered into 13.6 gigawatts of contracts, resulting in a total backlog of 70.3 gigawatts with an aggregate value of $20.8 billion. This equates to an increase of $0.08 compared to end-of-year 2022, and $0.028 per watt compared to June 30, 2022. Since the previous earnings call, SunPower has added 7.5 gigawatts of contracts, bringing their total backlog to a record 77.8 gigawatts. They have also signed a 5 gigawatt deal with Energix Renewables, and amended existing contracts to provide U.S. manufactured products and Series 7 modules, resulting in an increase of $312 million across 9.2 gigawatts.

At the end of the second quarter, SunPower had 36.4 gigawatts of contracted volume, with the potential to increase revenue by up to $0.7 billion or $0.02 per watt. This does not include any domestic content price adjustments or other potential adjustments. SunPower is sold out through 2026 and has a robust pipeline of potential bookings with 78.3 gigawatts of opportunities, including 41 gigawatts in North America, 5.5 gigawatts in India, 1.8 gigawatts in the EU, and 0.2 gigawatts in other geographies.

The decreases in total and mid- to late-stage pipeline from Q1 2023 to Q2 2023 are the result of converting certain opportunities to bookings and the removal of certain other opportunities due to sold-out position and diminished available supply. Additionally, 6.7 gigawatts of opportunities are contracts subject to conditions precedent, 1.9 of which are in India. The company's commitment to Responsible Solar is reflected in their environmental, social and governance strategy, which has decreased greenhouse gas emissions, energy, water and waste intensity per watt produced and increased the percentage of women in their workforce in 2022.

In the second quarter of 2020, SunPower achieved a net sales increase of $262 million, primarily due to strong market demand, the commencement of sales of their next-generation Series 7 modules, and an increase in module ASPs. Gross margin was 38%, an increase from the first quarter due to higher module ASPs, lower sales rate costs, and higher volumes of modules produced and sold in the U.S. SunPower also has a roadmap to reduce their absolute Scope 1 and Scope 2 greenhouse gas emissions by 34% by 2028 and achieve net-zero emissions by 2050, and is working to build circularity into their next-generation modules and manufacturing processes.

In the second quarter, the company recognized $155 million in Section 45X credits, which reduced cost of sales. Sales freight costs were reduced due to lower ocean and land rates, and reduced gross margin by 8 percentage points. Ramp costs were $29 million, reducing gross margin by 4 percentage points. SG&A and R&D expenses totaled $83 million, an increase of $8 million due to additional investments in R&D, share-based compensation, and higher professional fees. The new Series 7 factory in India is expected to incur ramp costs in the third quarter.

The second quarter operating income was $169 million, which included production start-up expense of $23 million, legacy systems business-related impact of $28 million, and share-based compensation expense of $8 million. This resulted in a second quarter diluted earnings per share of $1.59 compared to $0.40 in the first quarter. Growth-related start-up and ramp costs have cumulatively impacted first half 2023 operating income by $91 million.

In the second quarter, the company's cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities decreased to $1.9 billion from $2.3 billion in the prior quarter due to capital expenditures and the acquisition of Evolar, partially offset by advanced payments received for future module sales and a drawdown from the India credit facility. Total debt increased to $437 million, while the net cash position decreased by $0.5 billion. Cash flows used in operations were $89 million, and capital expenditures were $383 million. The company also secured a five-year revolving credit facility for $1 billion, providing the company with financial headroom and flexibility. Guidance for 2023 was also discussed.

The legacy systems business has seen $20 million of revenue, $14 million of gross profit, and $36 million of litigation losses within operating expenses year-to-date. The module business is expected to see a $40 million improvement in gross profit. The guidance for revenue, gross margin, Section 45X tax benefits, operating expenses, operating income, and earnings per share remains unchanged. The earnings cadence for the second half of the year is expected to be 40% in the third quarter and 60% in the fourth quarter. Capital expenditures for 2023 are estimated to be $1.7 billion to $1.9 billion, with $100 million of the total associated with a new U.S. factory and $300 million of equipment upgrades pushed out to early 2024.

This paragraph discusses the company's financial and technological investments. It mentions that they have had 21.1 gigawatts of net bookings year-to-date, leading to a record contracted backlog of 77.8 gigawatts. Additionally, they are investing $1.1 billion in a new U.S. factory office and have committed $2.8 billion of capital spending in the United States, which is expected to create 1,700 new jobs. They have also acquired Evolar, a European leader in thin film perovskites and CIGS technology, and have completed a limited production of one of their first bifacial solar panels. This is all expected to accelerate their development of next-generation PV technology.

Mark Widmar explains that the company is able to commit to some opportunities in 2024 and 2025 due to two reasons: the use of India for US shipments and the cancellation of orders from other parties. He also mentions that the company earned $1.59 per diluted share, has a gross cash balance of $1.9 billion, and is maintaining its revenue and EPS guidance for the year.

The company is restructuring deals with customers to meet their '24-'25 volume requirements and using some of the India line to help with this. They are also accelerating the timing of exports to support the U.S. market and pulling forward initiatives from their Ohio factory to create more supply. The biggest factor is the volume they will support from India, which is doing well. The bookings average ASP was $0.293, but when including the sales rate, the ASP is in the low 30s.

Mark is pleased with the bookings ASP and the momentum of the quarter, which was not slowed down by people trying to understand domestic content requirements. The company has converted existing volumes for an incremental ASP for Series 7 and domestic content requirements, and the new factory should help accelerate the momentum. The company has had a streak of 10 gigawatts each quarter and, if it continues, there is an opportunity to reach 35-40 gigawatts for the year. Philip Shen clarifies that the ASP for the whole backlog is $0.296, while the ASP for incremental bookings since the first quarter is $0.327.

Mark Widmar and Philip Shen discussed the total backlog of 70 gigawatts and the average ASP of $0.296 for the quarter. Widmar also discussed the customer feedback regarding the domestic content rules, which require 40-55% of components to be manufactured in the U.S. Widmar stated that their Series 7 panels from Alabama and the new site will be 100% compliant with these requirements. Brian Lee asked about the new factory, and Widmar mentioned that they are aiming for a two-year build cycle with the possibility of it being completed earlier.

First Solar has been working to have a local supply chain for years, and they are the only ones to meet the requirements for the module. They are being transparent and providing cost-level information to ensure their partners qualify for the domestic content bonus. They are helping their partners understand how the project level works with the tracker and inverter.

Mark Widmar discussed the potential for perovskites and CIGS to show up in shipped products. He noted that Evolar has complementary capabilities to First Solar's internal team and that they are working on stability and efficiency of the devices. He also noted that the timing of the factory site selection and the ability to energize the facility will determine when the manufacturing facility will start.

Evolar has demonstrated record sales of over 23%, and is exploring the potential of a tandem technology with a CadTel top cell and CIGS bottom cell to create a higher-efficiency product. Mark Widmar believes that this technology could expand their addressable market and further their technology leadership. He estimates that it will take two years to add manufacturing given site selection, tools, and other issues.

The speaker is asking about the potential for a clawback of the ASP uplift in 2024 due to the need for clarifications regarding domestic content, as well as the potential for long-term market share growth in the U.S. solar market.

Mark Widmar explains that the conversions that took place in '23, '24, and '25 were planned with the potential of domestic content in mind. If the customer wants domestic supply, then Widmar will negotiate an incremental ASP. For new volumes, provisions have been put in place that will require an adjustment if the representations given to the customer are not met. Widmar states that this is all within their control and if the project does not qualify, they will be held harmless.

Alex Bradley explains that the increase in module gross profit is due to a combination of better sales rate and manufacturing efficiency. He clarifies that the increase is not due to a reduction in cost of goods from IRA benefits. Additionally, recent contracts have included projects in both Europe and the US.

First Solar does not plan to source materials from the U.S. for Europe, but could in certain cases. Instead, the company will primarily use its factories in Malaysia and Vietnam, and when India is up and running, it will become the lowest-cost factory in the fleet. First Solar has global customers that need product for projects in multiple regions, and the company is able to source for multiple regions, as seen in the Energix deal. Despite having to differentiate pricing to be competitive, First Solar can still get a premium and does not have to resort to liquidation-type fire-sale prices.

The speaker explains that they need to ensure that Energex is competitive in the market and that they cannot set prices that are significantly out of market. They thank everyone for attending the call and conclude the call.

This summary was generated with AI and may contain some inaccuracies.