Q1 2020 Earnings Call
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[laughter].
[laughter].
Good afternoon, and welcome to first Solars first quarter 2020 earnings call.
This call is being webcast live on the Investor section first Solars website at Investor Day first solar Dot com.
At this time, all participants Ernie listen only mode.
As a reminder, today's call is being recorded.
I would now like turn the call over to Mitch as from first solar investors Relations Mr. Easiness you may begin.
Thank you good afternoon, everyone and thanks for joining US today the company issued a press release announcing its first quarter 2020 financial result.
A copy of the press release and associated presentation are available on first orders website at Investor Dot for solar Dot Com with me today are Mark with Mark Chief Executive Officer, and Alex Bradley Chief Financial Officer, Mark will begin by providing a business and technology update discuss first of all his response of the code 19 pandemic.
This will then discuss our financial results for the quarter as well as our outlook for 2020 on their remarks, we open the call for questions. Please note. This call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations, including among other risks and uncertainties the cyvera.
I'd and duration of the effects of the Coca 19 pandemic. We encourage you to review the Safe Harbor statements contained in today's press release and presentation for more complete description and is now my pleasure to introduce Mark Woodmark, Chief Executive Officer Mark.
Thank you Mitch good afternoon. Thank you for joining us today, especially in light of the extraordinary situation that we're all facing.
I hope each of you and your loved ones are safe.
I want to begin by discussing the country's responds to the cobot 19 Global health crisis.
Included in the impacts we are seeing on our business.
The actions, we are taking to support our associates customers and partners.
Turning to slide three.
Firstly and most importantly.
We are committed to our associates customers and partners around the world.
We are working to navigate this unprecedented challenge together.
With safety as our top priority.
At this time the majority of our office space Associates are working from home and minimize large concentrations of people at our offices and manufacturing facilities.
As a technology manufacturing company, we do require certain associates to be physically present at our production facilities.
And these locations we have implemented stringent health and safety protocols that include among other measures temperature screenings at facility checkpoints amass requirement for all our manufacturing associates.
Around the clock sanitation of high touch areas and social discussing.
Nor to further protect our associates. We have also implemented strict limitations on third party visitors to our offices and manufacturing sites.
Through these practices, we strive to protect the well billing being of our global associates and ensure that our technologies safely manufactured and delivered to our customers.
And meeting the clean energy needs of the global economy, we will continue to balance our top priority of safety with delivering value to each of our stakeholders.
We recognize the challenges that our associates and their families are facing in this period of great uncertainty and we're very proud of the dedication focus and commitment that we witness from our associates over the past month.
It is during challenging times like these that our culture of agility collaboration and accountability and the strength of our differentiated business model shine through.
Turning to slide for.
Our core operating principle is to endeavored to create shareholder value through a disciplined data driven decision, making framework that delivers a balanced business model of growth profitability and liquidity.
With this guiding principle, we will continue to adapt our business model to remain competitive.
And differentiated in the constantly evolving market.
Through our points of differentiation, which include.
Competitively advantage Cadtel thin film module technology.
A vertically integrated continuous manufacturing process.
An industry, leading balance sheet strength.
And a permanent.
Sustainability ideology.
We have created a resilient business model that better enables us to manage through periods of uncertainty, including the current environment.
The strength of our business model was reflected in our committed series six roadmap capacity of approximately eight gigawatts and our multi year contracted backlog of over 12 Gigawatts.
We're pleased with the contracted backlog we have built as it provides increased visibility into our future sales reduces financial exposure to spot pricing.
And aligns our capacity plan with future demand.
Turning to slide five Elmex provide an update on our module insistence businesses.
On March 26, we provided a manufacturing operations update in light of recent developments related to the coated 19 pandemic.
During today's earnings call, we continue to manufacture series six under their local government orders which include the following.
Firstly on March 22nd the state of Ohio issue to stay at home order, which was extended to May 29.
Recently, the Ohio government rollout a plan to gradually we opened other parts of the state's economy, while still minimizing the spread of Covance 19.
Through today's earnings call, our higher facilities have been permitted to operate as an essential business under the stay at home order.
However, with the closing the schools and the associated day care needs as well as other factors, we have experienced a decrease in our production workforce.
In March and April our higher one site operated a full capacity.
However, the temporary decrease in labor availability yields and approximately 25% reduction in capacity at our highly to during these months.
Starting in May essentially the entire manufacturing workforce has returned and we expect Ohio to will return to full capacity.
During this period of transition.
We incurred some incremental costs for overtime and supplemental pad.
Secondly on March 18th the government in Malaysia enacted a movement control order.
Which was extended to May 12.
And from which first solar was exempted as an essential business.
Under the order workforce at the factory had to be reduced by 50% to improve social business being while maintaining full pay for all associates.
In order to comply with the water we elected to maintain series six production, while halting series for.
We had anticipated discontinuing series for production during the second quarter of 2020.
Prior to the movement control order coming into effect, we had produced approximately two thirds of our expected 300 megawatts to series for production for the year.
Taking into account inventory on hand, future expected warranty requirements.
Following engagement with certain customers to replace series for with series six modules.
We have elected to accelerate our series for shutdown and will not restart series for modeling production.
However, due to move and control order.
We have experienced some delays in completing the exit process of our impacted associates.
However, despite operating under the reduce workforce reduction.
Through labor optimization.
And a work from home strategy for all Nonessential series six manufacturing associates, we achieved series six capacity utilization rates above 100% our factory, Malaysia during March and April.
Thirdly on April Onest government of Vietnam ordered a period of nationwide escalation, which required compliance with government mandated safety criteria in order to continue manufacturing operations.
We implemented all requirements and continue to operate at over 100% of nameplate capacity during March and April.
A significant achievement to highlight the team's commitment to safety was recognized by government orders as we achieved the best safety score out or the 15 large manufacturing facilities audited and the whole Ching Ming city area.
Our operational performance to date has been facilitated by our strong supply chain partnerships, which has enabled us to minimize disruptions to raw material suppliers to the factory.
Throughout the crisis, the vast majority of our third party suppliers have continued to service.
In cases, where we have had challenges in our supply chain, we had substantially mitigated those disruptions through active dialogue with our vendors and implemented implementation of contingency plans.
To date delays related to procurement of raw materials and components have not exceeded a week.
From a shipping and logistics perspective.
We have seen disruptions in global cargo route capacity.
Despite sailing cancellation or congestion.
Staffing reductions the impact on inbound raw material deliveries have so far but limited.
We continue to work with our partners and customers to mitigate these disruptions.
Finally, with regards to customer deliveries and several instances our customers are experienced delays and their permanent EBC process.
Which is affecting our ability to for them to receive our model.
In all cases, we continue to collaborate with our customers and provide solutions to challenges they're facing as a result of the current environment.
We are committed to meeting the needs of our customers. However to delivery date changes may impact the timing of record revenue recognition on our module sales.
Turning to the systems business with regard to early.
Hey development the most significant impact of the dynamic is the inability to hold public gatherings, which are often a step required in completing the permitting process.
Accordingly, our development team is evaluating the potential to utilize virtual meetings to fully satisfy these requirements.
From a PVA standpoint, we have continued to make significant addition to our contracted pipeline in the United States and Japan.
Since the prior earnings call. We have been awarded three PPA for projects located in Tennessee, California, and Texas across a diverse set of utility VCA in corporate off takers.
These projects secure system volume in that time period that captures the full value entitlement of our ITC safe Harbor strategy and copper replacement program.
Additionally, these projects have module shipment basis between 2021 and 2023.
Which importantly extends our contracted backlog until later years.
From a construction standpoint.
We are nearing completion.
The last remaining projects being constructed in house by first solar CPC.
And then remaining projects currently under construction being financed on our balance sheet and executed by third party TPC partners.
While our construction projects have experienced some combination of constraints related to cope with 19, such as certain balance system supply delays.
And schedule impacts related to labor availability.
We have been working with relevant stakeholders to remediate any projects scheduled delays.
The majority of these delays at this time have been mitigated.
As it relates to project sale.
These require input from and coordination with multiple government and private sector counterparties across a variety of development in financing areas.
Many of which have faced disruptions and business operations.
Therefore, we expect to see delays in product sales in the United States, Japan and India.
However, our strong net cash position provides us with financing flexibility and the option to balance sheet Finance project construction as well as temporary hold operating assets through periods of market dislocation or disruption in order to create options to maximize value.
Alex will discuss this later in greater detail.
With regard to own M. As one of the world's largest on them providers, we continue to safely and effectively manage our utility scale portfolio. So these power plants can continue to generate reliable clean electricity.
Our OEM business is well positioned for the current environment as our strategy emphasizes remote monitoring analytics.
And predictive maintenance to optimize power plant health and minimize onsite presence.
In our operations center at our global headquarters in Arizona.
We have implemented stringent health and safety measures in seating arrangements in line with recommended social distancing protocols.
As a result of these measures are on and business continues to efficiently and safely meet the needs of our customers.
Turning to slide six that will next provide a market technology and manufacturing outlet.
Well, we are monitoring the near term impacts of solar procurement the catalyst for driving increased utility scale solar penetration continue to grow.
Firstly in many markets new built utility scale solar is economically competitive with fossil fuel generation.
On both a total and marginal cost base.
In fact at the start of 2020.
The U.S. energy information administration estimated that the United States will see six gigawatts of an economical coal capacity decommissioned in 2020, while 13.5 gigawatts of new utility scale solar would be installed.
Secondly, our technologies performance and reliability are well understood with over 600 gigawatts of Cumulus capacity installments.
Globally through the end of 2019 solar has transitioned from an alternative to mainstream energy resource.
Finally, while solar experienced a period of significant expansion over the past decade.
We are still in the early innings of growth.
Although United States has.
And 80 times more solar installed today than it did a decade ago. The 77 Gigawatts. This installed solar capacity only accounts for 2% of the country's electricity generation.
Against the backdrop with growth in demand for cleaner electricity and global commitments to achieve climate goals.
We see significant runway for solar installation growth.
Our series six capacity plan is well positioned to capture a rapidly growing global PV market.
In this context I would like to note that our long term capacity expansion roadmap is essentially unchanged.
To date, the only shift in production strategy is delaying the plan 2020 optimization of our Vietnam factories.
This elective decision reduces downtime in 2020.
And we expect this rule, partially offset under utilization of our Ohio to factory.
Shifting to our technology roadmap.
Long term technology roadmap remains unchanged today.
However, if operational limitations at our advanced research lab incentive Claire, California continue for an extended period the timing of this roadmap may be delay.
As the only US based company among the 10 largest PV module manufacturers globally, we are committed to manufacturing Anders diversifying our supply chain in the United States and supporting us manufacturing jobs within first solar and externally.
A good example is commitment as a supply agreement with a glass provider that enable the construction of a new glass float facility approximately 10 miles from our Harrisburg, Ohio manufacturing site.
On a similar note we're pleased with the decision in April of the office of the United States Trade representative supporting the removal of the exclusion of bifurcation solar panels from the section to a one safeguard measures and our monitoring the resolution of the related litigation in the us core of international trade.
Well, we have been able to contract through the iterations of the bi facial exemption. We believe this decision of the U.S. trade representative is consistent with the underlying intent of section to on one measures and helps remote a level playing field for us solar manufacturing and innovation and invite.
Our amount of both.
Free and fair trade.
Turning to slide seven I would like to briefly highlight our bookings activity for the quarter.
Despite the uncertainty economic environment.
Demand for our series six product remains strong as evidenced by the 1.1 Gigawatts a net bookings since our prior earnings call.
Included in this total are approximately <unk> 0.4, Gigawatts of third party module sales and 0.7 Gigawatts assistance bookings. In addition, 0.7 of the net bookings is for deliveries in 2022 in 2023.
This demand for series six and the string to first solar as a trusted partner have resulted in a year to date net bookings of 1.8 Gigawatts.
After accounting for shipments of 1.3 Gigawatts in the first quarter, our future expected shipments are 12.3 gigawatts.
Internationally, we are pretty pleased with approximately 60 megawatts, we booked in Japan since our prior earnings call. Although procurement volume has slowed in Europe, India in Latin America. We are cautiously optimistic that man will recover apps is a potent 19 pandemic.
Turning to slide eight as mentioned previously the catalyst for increased solar penetration continues to grow.
As such we expect our mid to late stage pipeline of opportunities to continue to support the growth of our contracted backlog.
In terms of segment mix the pipeline of 7.5 Gigawatts includes 6.3 gigawatts of potential module sales.
With the remaining 1.2, gigawatts representing potential systems business.
In terms of geographic breakdown North America remains the region with the largest number of opportunities at 5.2, Gigawatts Europe represents 1.6, gigawatts with the remainder and other geographies.
Finally, operationally I'm very pleased with our manufacturing execution, particularly given these extraordinary circumstances.
During March and April megawatts produced per day was 14.8 and 15.3, respectively.
Cash utilization was over 100% in both periods.
Manufacturing yield was 94.5 and 95.4%.
Average drops per module was 433 and 435 watts.
The percentage of modules produced with and reflective coating was 97 and 98% and the arc been distribution from 432 440 Watt modules was 94 in 96%.
From an entitling perspective, we have demonstrated capacity utilization of 120% at each of our factories in Vietnam and Malaysia.
Enabling and sustaining this incremental throughput coupled with our module efficiency roadmap.
Gives us confidence we can continue reducing our module cost per watt.
I'll now turn the call and Alex who will discuss our first quarter financial results and outlook for 2020.
Alex.
Okay.
Thanks Mark.
Given the unique circumstances relates to the virus I'll spend only a few minutes discussing.
Actual results.
I will then provide a framework for how when evaluating our financial operational outlook and some of the key risk we see in the current landscape.
Turning to slide slide nine in something with the income statement.
Net sales in Q1 with 532 million.
The segment basis, and the percentage of total cooking net sales a module segment revenue in Q1 was 74%.
Gross margin was 17% from Q1.
The system segment gross margin was 11% and was negatively impacted by low overall revenue recognized in the quarter relative to the system segment fixed cost.
This is positively offset by the sales several early stage development assets in the us.
Module seven gross margin was 19% in Q1, which was negatively impacted by 10 million a severance facilities for decommissioning costs.
4 million of Ohio to ramp costs.
And 4 million of under utilization and excess yield losses, driven by temporary declines in capacities capacity utilization.
Can you aggregate, it's impacted module segment gross margin by approximately five percentage points.
Operating expenses were 89 million in Q1.
And of note. This includes approximately 5 million of legal fees associated with the settled class action and active opt out mitigation.
4 million of severance costs relate to the February reduction for us and 3 million of expected credit losses on our accounts receivable as a result of the economic disruption caused by codes 90.
In the aggregate these items increased Q1 operating expenses by 12 million.
But the results of the previously mentioned factors, we had operating income of 2 million in Q1.
Thank you and we realized a 15 million gain on sale of certain securities associated with our end of life recycling program within the other income line on the piano.
This benefit was partially offset by 17 million of credit losses associated with certain notes receivable from one of our investments.
During the quarter, we recorded a discrete tax benefit of approximately 89 million relates to the protein bars aid relief and economic security.
The discrete benefit will be partially offset by a related rate impact expected over the remainder of Twentytwenty. We therefore expect a full year net benefit from the Cadillac approximately 70 million.
Additionally, we expect a shift in our jurisdictional mix of income for the remainder of Twentytwenty between expect increase the full year tax rate by approximately two percentage points.
The combination the aforementioned items led to first quarter earnings per share of 85 cents.
Turning to slide 10, I'll discuss select balance sheet and cash flow islands.
Our cash marketable securities unrestricted cash balance ended Q1 at 1.6 billion.
Net cash position, which includes cash restricted cash and marketable securities less debt ended Q1 at $1.1 billion.
Our net cash position decrease relative to the prior quarter, primarily due to the payment of the 350 million class action litigation settlement.
Series, six capital expenditures, which were primarily relate well second series six factory in Malaysia.
The decrease in module prepayments following an increase in Q4 2019 associated with ITC Safe Harbor module disorders.
And prepayment components included on the module bill of materials.
Cash flows used in operations were 505 million in Q1, primarily due to payment to the litigation settlement and the previously mentioned decrease in multi band.
Finally capital expenses were $113 million in this of course.
[laughter].
In terms of financial and operational outlook recognize these are truly unique times and for that reason, we're taking a different approach to our guidance discussion today.
Turning to slide 11 in Q1, we were able to mitigate a significant portion of the impacts on our business from the coated 19 pandemic.
However, given the location of our manufacturing facilities in the United States, Malaysia and Vietnam.
Location of the majority of our customers Punch 20 module sales in the U.S.
The location of the majority of our project asset sales in the U.S. in Japan.
The impact was only felt towards the tail end in the first quarter.
Today, the company and financial though not be materially impacted by coded 19, however, given the significant uncertainties on slide momentarily and the potential impacts on our operations amounts actual results as well as on energy and capital market well the drilling affiliates when you blend type.
These uncertainties included but not limited to firstly, the number and Thats the end trajectory of coated 19 cases globally.
Secondly, the actions of federal state local and foreign governments in response to pandemic.
Thirdly, all third party supplies ability to continue maintaining production and delivery of raw materials and components to our manufacturing sites.
Fourthly volatility in the capital markets, including the tax equity market in the U.S., which may affect the value of an optimum finding about asset sale.
Typically logistical constraints contending with GE is shifting capacity in port congestion.
And finally, the result of local and national assets gradually reopened a common.
We are however, providing limit guidance metrics that we believe a largely within our control at this time.
This includes a view on full year Twentytwenty module production.
2020, capex related to our long term manufacturing capacity expansion.
Any view on operating expenses on the efforts we are undertaking to optimize cost as we went through the current pandemics.
To 43 million.
If every doing a fourth quarter earnings cool, we also know evaluations bikinis options, while U.S. project development.
Because you need to worry about financial adviser to determine the optimal paulson timing for this person.
I would like to know <unk> global business operational impacts from kind of in 19 May result in companies focusing more on in total initiative, rather than I'm, just doing new partnerships or have an ideal.
And as a result, this may impact upon him in the process.
Each of these proactive as petite decisions align with all data into excel in technology costs and product leadership.
<unk> profitability has acquitted tea.
And so enable us to <unk> both during this disruption as well as for the long term.
Finally at 1.6 billion gross 1.1 billion net cash position remains a strategic differentiate that enables no dummy stability, but also growth for the innovation parents at both economic prosperity and uncertainty.
Intend to vigorously maintain the strong liquidity position. This time do not expect drawing on revolving credit facility.
So I'm just like 12 summarized email from today's cool.
Let's see what you want to share an 85 cents.
And that cache of 1.1.
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Secondly, we achieve fleetwide capacity utilization of approximately 100% during March and April and a demonstration capacity utilization of 120% and each but factories in Vietnam in Malaysia, which gives us confidence we have you done on cost reduction.
Despite challenges relating to the pandemic with pleased with both the operational added financial beholden cheating resulted in line with those three club in 19 expectations.
Studied them on for a series six technology remains strong and we have continued that I didn't call contracted pipeline, but not bookings at 1.1 gigawatt apply weddings cool and 1.8 gig wants to bookings here today.
Finally, given the significant onset and you posed by the car condemning well with drawing all previous fully operational in financial guidance.
Well, how about that I'm able to provide fully at 2020 production guide approximately 5.9 gave away.
48, 2020 capital expenditure guidance to 450 550 million.
I'm fully at 2020 operating expense guidance to 340 for 360 million, which includes 50 to 60 million the stuff of expenses.
Well that would <unk>.
Cool.
Oh brighter.
To ask a question. During this time you meet you press start I mean number one on your telephone keypad.
Try your question asked the pound key.
And we have our first question for me Mr. Shin Mr. Philip <unk>.
[noise] hi, everyone. Thanks to the question.
First one is you guys are now it's the large quarterback water.
Modules yesterday, I believe with the national grid subsidiary.
<unk> 2022, what kind of pricing were able to secure without water Oh and beyond that order can you talk through how pricing is evolving in general you know our checks adjust module pricing globally can be down an additional 10% to 15% from current levels. Given it was over supply. So 20 degrees that impacting your conversation. Thanks.
Yeah. So I guess on the price same side again, one of things. This I think continued exercise.
One of the place is going to continue to make is is again, how we manage our business and how we continue to try to depreciate herself and and continue to position our technology to capture the ultimate value in in the marketplace. If you look at it on a year today basis on third party module sales everything that we booked your today so called.
One 1.2 somewhere somewhere close to that number of the other one eight the aggregate bookings or have have the three handle on I'm still so if you look at the average that we've recognized so far against a year day basis. It still has a three D.N. line now as you go further out there's two things old we'll show you.
Different complexion around the A.S.P.'s, one is how far out or we are we looking into and some of those models sales like in particular as the one that you've reference is actually for shipments in 2022 in deliveries I think even start to touch into 2023.
So that's one thing so the further I. We go ice you would've just spacey is peace will will have some amount of erosion as you move forward. The other is is geography, which we're recognizing the where the models are gonna be shepton. So the the regions, where we have the best value creation.
Hot humid climates in particular, we're going to see higher S.P.. So if I had to give you a a kind of he looked at the average you're going to see an advantage of probably to the average a penny paying half above the average when we're in kind of very core sweet markets for us.
Florida or even at Texas, Okay, Georgia, If you go north the further north you go you're going to see some downward pressure on the A.S.P.N. So you may be a penny are paying a half lower than the average if you're in Illinois.
<unk> as an example, and so that the order that we booked with a drama which is your point affiliated with or subsidiary of National grid. Some of that volume sniffing. Fortunately volume is gonna be further up north in markets, where we don't have as as strong a an energy advantage.
So that it is further out in the right. That's what sets out into the 22 and even touches 23, so aware that volume, it's going to be north and then further out on the horizon, you're you're going to see a slightly lower and E.S.P. and so at cross that average <unk>. This year. This summer that volume have a to a very high and a hot at you.
Had a lot a bit of a very high in the two range. It does the average is something worth three and even when you go out to further on the horizon call. It out into 22 in 23 or four in a market or hot humid environment, we're still going to we're still see and three handles okay. That's what we're seeing right now now I get we have plenty of time to be patient.
I'm not I'm holding beholden to excess supply our book is full for the next a year and a half and so we can be very selectively can engage it with with customers who value gardening algae valley Oh relationship with for solar that well. They know will deliver will honor against our contracts and will provide a high quality.
You know so as you get into that horizon.
Customers are looking for here and that and longer data to rise in I think we've got a unique value proposition plus a lot of that volume that we did with draw them. All I think almost all of it is for.
<unk> improved temperature coefficient you know so we're we're happy with that booking it's a great partnership relation we've had with them and we're very happy with them being able to secure that volume and I would say on balance that everything I've seen so far I'm still a happy with the A.S.P. environment that ran given some of the numbers that you're.
Loaded and unfortunately, maybe something or other competitors, who I've excess.
Supply or an open book is maybe a better way to say, yeah, they're going to see very challenging near <unk>.
Mm.
And we have our second question from Mr. Brian Lean mystery heat. Please go ahead.
Questions and then hope everyone is doing well.
I guess first question I had was just on the gross margin in modules. They were maybe 50 basis points versus key for like for like if we exclude some of the one time items you highlighted Alex I guess I would have expected a bit more improvement with series six volume growing here in series for all still lower in the mix.
The ongoing cost reduction so the question would be just you know the the 10% decline in module production costs and 2020, that's still on track for the year and then is there anything else in the quarter, you know that might have limited.
It's the March expansion versus where are you.
You know versus where you ended 2019 and then yeah second question if I could just squeeze the scene is on the systems businesses. Just wondering yeah that seems to be an area, where you might have the most kobe at 19 risk. So how much of your original revenue guidance for the system segment. This year was based on projects.
That had P.P.A.'s, but had it been sold versus projects that had already been sold it just need to recognize rather revenue ratably at their complete this year. So just try to see what's that risk. If if it's really about the project sales that you outline for the products that don't have you know sales status in the okay. Thanks guys.
Yeah, I mean <unk> on the gross margin we commented on the pieces that are having a negative impact of the court I can't so much more beyond that what I can say is that when you talk about the the 10% reduction of of the yeah. I'd say, we're very pleased with how things are going in the first coats. If you look at without a couple of the code they'd related expenses.
Stripping those out I think we are very pleased with the manufacturing performance and the cost of woman and say Wow.
Liebeler on track about production over the habits Q1.
As it relates to the system isn't it so when we guys. Yeah, we sat around a 30% of the revenue was coming out of the.
Out of the systems business. If you if you look in the queue, you'll see in the pipeline table is very limited assets that have already been a little bit continued to recognize revenue. There's limited asset remain are up in around nine score 5% complete so the majority of the systems remedy for the year with coming from assets that I've yet so.
Those are assets close in the U.S. and in Japan.
So that's what yeah, one of the signal reasons only love that on the guidance. We chose to do in terms of notification guidance significant drive the that was uncertainty around the systems business and that relates to I'm starting to get around the timing of finance.
And if you look in the U.S. I think that.
Exactly and that pockets they stand a generally open to deal with a gun endemic we have some assets.
Financing isn't is in place other stuff with the looking to find out suppose deal I think capacity for 2020 exists 2021 Heck I see.
A lot less than it is grappling with impact the price of what it means that future acquisitions.
On that side.
The other thing, but although we've seen.
Did you issue, it's on the <unk> widened cool.
Credits, putting as a decent around finding but there's also a significant logistical challenges you go to remember on the system sign.
So.
The town, so also counts policies and significant challenges to get done.
So when we look an awful.
You believe that even those that on finance doors cold.
Well positioned to get the fine they may need we may tell them hundreds of people failed structure, where the project just hold them accountable financing construction respond that becomes responsible hutch, though we mail times, you really needed find it prevents prevents better value for us to do that financing and potentially even hold assets for a little bit longer.
Putting a lot of what you're saying hey, they timing issue, it's not a fundamental issue, but there are assets beholden to the yet to be sold in some of the D.S.B. finance and that's one of the key challenges to the died.
L. out on the on the cross margin, Brian when you look at a sequentially couple of things that are in the mix in there want one is that the the quenches E.S.P. is down for both four and six partly because the S.P. and the fourth quarter were.
Benefited from the Safe Harbor.
Pricing that was in the market at the time, because as you know everybody was trying to capture they're they're safe harbor and some of them took delivery in that product and and.
A year, she saw a little bit better E.S.P.
Or associate with US you see a little bit that the other is that there's still a reasonable amount you know volumes down pretty significantly. So you see pretty big drop in volume, a soul and and there's still a reasonable amount of series for that sits in the first quarter nicely move forward. The margin profile will continue to improve there's there's about.
Close to five vantage point difference between series Foreign series six when you look I don't know it on a normal life, just the basis and as we move forward you're going to see volumes I'll move on court, 100% 36, as we get into the second half for sure little bit of series for a quarter, but after that it's all series six and then is Alex indicated.
Got the benefit of the the cost reduction road map as we progress through the balance of year in a fleet you know as as Alex It I think we're pretty happy with where we always asleep threesome headwind that we're dealing with a little bit on in Ohio any Malaysia.
Anonymous department extremely well, it's really the only factory that is really not been impacted in any way, both Malaysia and Ohio's been some some it back so we'll probably reflect the business Vietnam oval or for the year and they <unk> they they'll make up for some of the challenges that we experienced here in a in Ohio, Malaysia.
Mmm.
[noise] and our next question comes from the Michael Weinstein.
Please.
Sir.
Hi, Thanks for taking the question through some money on me up my cool No I want you spoke about the timing share with assistance from the previous question, but they're just talk about that any time in your shoes. So <unk>, so, but you might be name they're shipments on the customers.
Request and then how should we think about Dodger admission do any underabsorption on production losses are <unk> and so I'm not a back on the cost.
This yeah.
Yeah. So.
The impact from the mode in some way to similar so when I say it.
One of the significant reasons for us I think lack of clarity and.
Scientists the systems business the issues, we face on the systems.
Same issue, though customers who are buying module for my face on that project a lot of 'em modules volume is going to a couple of projects that have financing either in place. So committed however that maybe at that but that isn't the case and if so we may see customers requesting delays to allow them to plug is fine.
And if that's the case well what the cup. So we cans with somebody that schedule. So I think there's definitely some overlap that there's also some more simple issues on the module side. You know we may have shipping constraints getting modules to that final celebrity point b. that.
<unk> well road and we May find the same from customers they have constrained to taking delivery of pulling from project sides. So from outside the one of the logs drive is.
Currency around guidance listen systems business, but there are some of those same forces and play I didn't relates to the module business and.
Relating to the last question around gross margin I didn't we're going to see some of that play out in Q2 as well we already have a few of some module shipments being delayed Adam Dickey three by some of those factors I spoke about just now.
<unk> Oh.
Not going to have a direct impact on our manufacturing cost. So it will have an impact from climbing a <unk>.
<unk> it impacted as but low red.
<unk> have less <unk>, that's a fixed costs.
Across so <unk> business, otherwise the see the manufacturing that he needs a run the the cost of the place.
Just the timing of rap ranked quite small I didn't shift largely out it a second off of the.
[laughter] motion comes from me Mr. Ben Hello, Mister bin. Please go ahead.
Hey, guys well.
First question.
Big projects or alter.
Oh, I'm reading about or where are you or sitting on those <unk> <unk> <unk> <unk>.
Oh no.
Mmm steer clear of work and then what's the question is well.
Through all the.
Poor thing about.
But <unk> alright, alright, alright calculate were recorded so.
Oh, Oh Oh.
So I'm just wondering <unk>.
So I think <unk> <unk> <unk> <unk>.
Yeah, so better those large part or something so maybe you're referencing some of the projects in the the middle East, which.
They've been big elephant hunting type of opportunities for.
Producers for a number of years you know we we were in early in some of those opportunities. We do the very first do you what project it'd be provided the models from the second one and then you know what's happened ever since then on on some of those large opportunities is you know people are just going in.
Extremely aggressive very low pricing it is on economical Ah I guarantee that whoever's, providing those models that unless there.
Getting even incremental incentive to what they already have I'm being provided to that but there's no mater price that they're trying to fit into those products is up there probably barely covering variable cost with box.
And so you know where we've chosen not to spend that that's one reason why we have you know the strength of the contractor <unk> backlog of we have we can be selective and and you know we're not looking to entertain willing to participate in those types opportunities, but we have many other places that we can go to in cats are better value for our for our technology as it relates to.
To visibility and you know the biggest impact that we're having right God.
The uncertainty of capital Mark.
You know there's.
Three large projects you know.
For revenue in March.
Standpoint, Ericsson Kings and that's for him to here in the U.S. and then there see yeah <unk>.
In Japan, there's a couple of other projects is all but those are really the three largest wrote in margin contributors.
And and <unk> right now, we we don't have free clarity around what's gonna happen in the capital markets and also the you know we have expectations and what we think the value that is better than those assets and and and I don't want it so.
Go out and so I'll just do to be beholden to an earnings are revenue coming to the year and if it means I'm going to get.
Diminished value, we want to be able to optimize that value in you know we've been very selective with doing that in the past and we may end in this case and upholding from the last as long and then we would have otherwise because we can capture better value when markets normalize back and I think there's a lot of uncertainty right now it out.
Positive indicators in the capital markets and there's potentially issues in the capital market then until everyone can.
See what happens in sort of evaluate from their own perspective.
You know, we won't know till we know and so you know we we have got in the marketing and really get an update we've got indication value of assets free over it and you know <unk>. Unfortunately, we need to do now it's it's better getting you get a better indication of what the evaluation of his assets would be post Kevin So.
Systems businesses is a pizza, but the other thing that Alex mention is that we do have we affirm committed contracted backlog and sold out for the year. So we have that but.
And and a high percentage of our.
Module third party module sales customer service already got out in the close on finance and there's a difference between US I mean, we we always hear balance sheet financing. We you know most of our customers to go out and they get construction financing tax equity bridge loans and everything else. So they've they've already got Capitol. So good percentage of our back like has committed capital, but there's other portion of our models shipments.
That our customers have not lowest on their finances, yet so they need to do that the some of that delay to some of that push their.
Their schedule and and we don't know yet and so we we we have to get that inside to get have a higher level conviction around the module business and the contribution from revenue can arrange for the year, we've been in close contact with a number of so they are still highly confident in their ability to close they're getting signals.
You know the banks and but that that side of the tax equity side.
They and they feel comfortable but they're still uncertain and so we felt that given where we are right now with all the uncertainty that we have the right thing to do is to use to pull guidance now I can and I think Alex said in his comments, we are very happy with how the year has started we're very happy with everything that we've seen in as we move forward.
Board.
Things return to what we had initially <unk> what the world is the capital markets was like in February then you know, we we feel very confident we can still deliver against convinced that were made in February but I don't know yet I mean, those it's there's so much uncertainty.
We feel right now, let's let's let's pull the guy to make sure people understand you know kind of where we are and will continue to ride the best information when we learn more especially around the cell down of our projects or if there's any customers that have for whatever reason difficulty closing Catherine financing for their projects and then our project you know model shipments to schedule gets.
Pushed at all.
Yeah, Benjamin a racing I think this is this is a timing issue more than a business fundamental issue. So you know if you look in the comments he made them in the scripts I liked them on this problem and shown by the bookings reported by including AH No 0.8 gigawatt since the end and of course sign off at the end of the Q. day wishes fully during the cold in 19 and then.
Okay. The other business.
Manufacturing fundamentals a strong shows demonstrated really good for it but I forget the factories efficiency is good call sparring.
Specific impact as good a callback ASCII planner on schedule the Olympics metrics continuing proof.
So we have the issues that we just built around especially around business, but oldest being fed the challenge with guidance as far as Emily Okay timing and we just don't have that parents today, but there that's fun.
[laughter].
And our next question comes from May Mr. Pollen Rush Mr Rush.
Thanks I'm risque.
[laughter], so the order food at cost.
Capital it.
And whether you're willing but then.
Subpoena finance partner with Us pocket.
Yeah. So I mean <unk> good experiment in a portion of that we're a module backboard.
Utility own generation, so something someone in your rate base. It's already been approved commissioned an all out I mean, that's that's not that's got to write if anything were being direct.
<unk> you need to.
It would make sure we deliver it maybe schedules and everything else right. So there's portion of that it's really the it's more the the P.P.A. for you know segment. It for you know primarily for independent are producers or developers and you know that that.
That's where the where the restaurants and and I would say the stuff that we're anticipating to deliver through two Q2 to three largely financing place where you start seeing a little bit more of a gray area is projects that would be delivered in q. for that released support C.D.'s that started out in you know there would be a project.
It would hit C.D. and to 2021 called the second half of 2021 to worry about a year or so out from where those few d.'s are in construction has an actually I started in those places so and you've gotta remember this disruption has been with US now almost two months and so you know people who are going to go out sort of hit the capital markets and kind of a and a cue.
I'm beginning to to to that large you would've put their instructions financing tax equity bridge financing in place that then would've funded their construction then you'll ever again C.D.'s and the second half a middle that's sort of 2021. So it's really the volume that sits in our fourth quarter that is our most most exposure of this stuff or two to three not as much.
And again, if anything's more directly tied to a you know.
Generation, which which you could portion is not that volume is less less risk of this one time I don't have the exact percentages. So I can put you in each pocket, but I just give you some color route.
<unk>, Yeah, and I do think we'll see some impact to Q.T. on Q3, but those are going to be more related to logistics and they don't want to find them things can be a function of ability to ship inability to receive run up to two.
The plan is financing, which for those projects. It typically already in place as marks at the financing challenges more likely for later and neither never used within a readout on 2021.
[laughter].
[laughter].
And ladies and gentlemen.
Today's conference call. Thank you for participating you may now disconnect.
[laughter].
[laughter].