Q2 2020 First Solar Inc Earnings Call
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At the beginning stages.
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Good afternoon, everyone and welcome to first solar second quarter 2020 earnings call.
This call is being webcast line on the Investor section, So, let's say at investors out for solar Dot com.
At this time all participants are in a listen only mode. As reminder, today's call is being recorded.
Now I'd like to turn the call over to niche and I'm personally Investor Relations Mr. Agnes you may begin.
Thank you good afternoon, everyone and thanks for joining US today the company issued a press release and that's a good second quarter 2020 financial results a copy of the press release and associated presentation are available on first sourcebook site, an investor Dot first solar dot com.
With me today are Mark Woodmark, Chief Executive Officer, and Alex Bradley Chief Financial Officer, Mark will begin by providing a business technology update Alex will then discuss our financial results for the quarter as well as our outlook for 2020.
Following their remarks, we'll open the call for questions.
Please note. This call will include forward looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations, including my other risks and uncertainties the severity and duration of the effects of the cover 19 pandemic.
We encourage you to review the Safe Harbor statements contained in today's press release and presentation for more complete description and it's now my pleasure to introduce Mark Widmar, Chief Executive Officer Mark.
Thank you Mitch good afternoon, and thank you for joining us today.
We continue to hold you to Youre managing well dependable continues.
As we emphasize during our May earnings call. Our covert 19 response centers on balancing our top priority and safety with meeting our commitments to our customers.
This approach together with our associates dedication and the strength of our differentiated business model enabled us to deliver solid financial results for the second quarter and year to date with earnings of 35 cents per share and $1.20 per share respectively.
Alex will discuss our results in greater detail.
Starting on slide three with our module business.
We remain pleased with our operational performance was strong metrics across the board year to date, we have produced 3.5, gigawatts, including 3.3 Gigawatts of series six modules.
Fleet wide capacity utilization has remained over 100% for the month of May June July.
The Fleetwide capacity utilization is led by our international factories in Vietnam, and Malaysia, which are progressing towards their previously demonstrated capacity utilization peak of 120% of initial design nameplate.
Domestically, our Ohio, one and two factories experienced two and half days of idled production in June, but still achieve respective utilization rates of over 100% to 94% during June.
The unplanned downtime was caused by rail rail logistics constraints.
Resulted in a delivery delay of certain bill of material supply.
As a result, we accelerated previously planned factory upgrades from the third quarter to minimize any impact to our full year production plant.
On a fleet wide basis in July megawatts produced per day was 15.9 megawatts manufacturing yield was 96.4% average watts per module was 435 loss and the arc then distribution from for 32 for 40 modules was 90.
Brent.
Vietnam had a particularly strong start to the quarter with capacity utilization of 114% and manufacturing yield a 100 basis points above the fleet average.
We are encouraged by the operational start to the quarter and the momentum that provides to further improve our cost per watt.
Regarding our capacity roadmap, we remain on track to commence commercial production at our second series six factory in Malaysia, and the first quarter of 2021.
However, third party equipment installers as well as our US based associates are subject to international travel restrictions that this essential travel in a safe manner incremental delays, resulting from these restrictions may impact the timing of initial production.
Since the previous earnings call, we have not experienced any significant operational disruption from our suppliers and ability to maintain manufacturing operations.
Much of our ability to mitigate this impact to date stems from our supply chain strategy, which emphasizes corporate and geographic diversity of supply.
In certain situations, where we source critical raw materials from a single vendor we ensure the product can be manufactured in multiple geographies.
From a shipping and logistics perspective, the most significant impact today is the consolidation of shipping routes, which has resulted in constrained capacity.
We have factored this into our logistics strategy and are working to mitigate these impacts.
Separately Port congestion has recently approved in Europe, and the United States, Although we continue to monitor this risk.
Turning to our systems business on slide four our EPS results was favorably impacted both successful sale of our 123 megawatts American Kings project.
We are pleased with this result.
Capturing competitive market value for this project despite capital market dislocations.
From NEPC perspective in July we declared substantial completion on the last remaining projects being constructed by first solar EGPC.
This project has experienced the combination of unforeseen weather and colder 19 related delays.
And encouraged significant additional costs during the quarter, which in first and Fortunately weighed on our Q2 results.
Alex will later discuss the PNM impact as well as provide an update on the capital markets for system projects.
With regards to our US project development business as discussed on our Q1 earnings call Cobot 19 had affected the timing of our evaluation of strategic options for the business.
In June however, in collaboration with our financial Advisors, we made the determination of the market is now in a better position to evaluate potential partnerships sale or other transactions.
Accordingly in June we formally launched this process.
We do not intend to discuss further developments except to the extent the process is concluded or is otherwise seemed appropriate.
With regard to our own and business during the third quarter 2019 earnings call. We indicated that we are evaluating the long term cost structure competitiveness and risk adjusted returns of the business.
In addition, during our fourth quarter 2019 earnings call in February 2020, we discussed that we were continuing to evaluate our own and strategy to ensure that this business is able to achieve its full enterprise value potential and continued market leadership.
Our original entrance into and continued presence in the on end market and it was a natural extension of our utility scale solar development NEPC capabilities and helped create a vertically integrated systems platform, which allowed us to capturing additional profit pool.
However, with our transition to a third party execution model increase the maturity of the us so our own end market and our evaluation of strategic opportunities.
For our US project development business, the strategic feces behind our own business has changed.
From a financial perspective, as we indicated during our December 2017 analyst day.
Our contracted on and gross margin at the time was above 30% largely as a function of legacy contracts.
We also indicated that as we expected gross margin for new OEM business to decline to a range of 10% to 30% depending on the risk profile and the contract tenor.
Relative to this expectation with increased competitive pressure and declining PPA prices, we are seeing new contracts trend towards the lower end of this range.
While we have been able to partially offset the impact of this gross margin percentage declined by increasing the scale of our own them portfolio in order to further optimize the business and maintain our market leading position, we would need to continue increasing the business scale as well as enhancing the range of owning product and service offerings.
To justify incremental capital investment in all of them the financial returns would need to exceed those available from further investment in our module business.
Earlier this year, we received a compelling unsolicited offer to acquire our North American Olean EMD business from Nova source power services, a portfolio company of Clairvoyance group, a strategic investor who is scaling a market leading solar on them platform. Following the recent acquisition of Sunpower utility scale Olin and business.
We believe their strategy for scaling in growing the business will enable beyond enterprise to reaches full potential.
Importantly, this week, we signed an agreement to sell our North American OEM business.
We believe this transaction captures compelling value, we'll maintain our history of high quality customer service and with additional scale and capital will further enhance the capabilities of the business.
Upon closing of this transaction, which is expected by year end.
Proximately, 221st solar on M. associates are expected to join no resource solar owner platform.
Turning to slide five I would like to highlight our bookings and shipment activity for the quarter.
And as challenging economic environment demand for our series six product remains strong.
The prior earnings call, our net bookings are 0.8 gigawatts.
These new bookings include approximately 0.3 Gigawatts of third party module sales and 4.5 Gigawatts of systems bookings.
In addition, 0.4 Gigawatts of these bookings are for delivery in 2022.
Despite our success in booking these additional volumes in us we believe the current uncertainty of tax equity availability for projects scheduled for completion in 2021 and beyond as well as the uncertain status as a legislative solution such as the ability to receive direct cash payments in place of direct.
That is to alleviate this tax equity availability constraints is a headwind impacting our ability to book certain opportunities in late stage negotiations.
We currently have approximately <unk> 0.9, gigawatts of opportunities and late stage negotiation with terms pricing and conditions near final agreement.
We believe the current uncertain tax equity environment has contributed to the delays and finalizing these negotiations and importantly has delayed our ability to both these volumes.
No although not booked the signs are reflected in our late stage opportunity pipeline.
Strong series six demand coupled with first solar strength as a trusted partner underlines, our current bookings and late stage opportunities, which when combined totaled 1.7 gigawatts.
During the second quarter, we shipped 1.2, Gigawatts, which was approximately 300 megawatts below our expectations delays in shipments were due to a combination of previously mentioned port congestion project site labor constraints and interconnection and financing delays.
After accounting for second quarter shipments.
Our contracted backlog.
Remained strong with future expected shipments of 11.9 Gigawatts.
Our ability to for contract module supply creates a position of strength.
Which enables pricing discipline and helps to mitigate the financial impact of variable spot pricing for solar modules.
We remain effectively sold out through 2020.
With only two gigawatts left to sell our expected 2021 supply.
With a 21 mid to late stage pipeline of 3.8, Gigawatts, which includes the previously mentioned 0.9 gigawatts in late stage negotiations.
We have a path to fully contract our 2021 supply plan over the next few quarters.
With regard to our systems bookings in July we were awarded to PPA case for projects located in Ohio, and North Carolina that support the clean energy needs of a fortune 500 companies starting in 2023.
Separately.
The building out the recent PPA, we signed with Dow prior to the first quarter earnings call. We continue to see strong demand from corporate customers, who are becoming increasingly proactive in reducing their carbon footprints.
As America Solar company, we're proud to support the renewable energy objectives of corporations with our series six technology, which has the lowest carbon and water footprints available in the market today.
As a reflection of the sustainability leadership, we are pleased to announced earlier today, our commitment to the already 100 initiatives joining the likes of Apple Facebook Kellogg and Microsoft all customers of clean energy generated about first solar technology.
And joining this initiative, we are targeting powering all of our us operations with 100% renewable energy by 2026, and our global operations by 2028.
As shown on slide six our mid to late stage pipeline of opportunities remains robust and has increased by 0.3 gigawatts. Despite bookings of 28 gigawatts since the prior earnings call.
In terms of segment mix. This opportunity pipeline of 7.8 Gigawatts includes approximately 7.3 gigawatts of potential module sales with the remaining represent potential systems business opportunities.
In terms of geographical breakdown North America remains the region with the largest number of opportunities at 5.9, Gigawatts Europe represents 1.7, Gigawatts and the remainder in Asia Pacific.
As a reminder, a mid to late stage pipeline reflects those opportunities we sales could book within the next 12 months ended a subset of a much larger pipeline of opportunities, which totaled 15 gigawatts of opportunities in 2022 and beyond.
Turning to slide seven I would like to provide an update manufacturing cost and technology outlook.
Overall, I'm very pleased with our manufacturing execution, especially in light of the current environment.
Much of our ability to thus far mitigate the operational impact of cobot 19 stems from our proprietary manufacturing technology, which enables us to produce a cadtel modules within a single factory in a matter of ours.
Our fully integrated manufacturing process is a competitive advantage relative to crystalline silicon technology, which is manufactured over the course of several days across multiple sites.
While we have largely mitigated supply chain disruptions to date the impact of the pandemic experienced another industries underscores the importance of supply chain diversity.
As the only use based company and only alternative to Chris and Silicon technology. Among the 10 largest solar module manufacturers globally first solar provides a domestic supply security and enables the United States in global markets to ensure to reduce their over reliance on imported in government subsidized panels from China.
As we look to the future, we believe a differentiated technology and advantage cost stranded structure in a balance risk perspective on growth will enable us to continue succeeding in the global marketplace.
By the ended 2021, we expect to have eight gigawatts of series six nameplate capacity across factories in the United States, Malaysia and Vietnam.
No at this capacities over 120% higher than the original nameplate envisioned when we launched series six.
As we evaluate the potential for future capacity expansions, we may seek to further diversify our manufacturing presence.
Although we have made no decisions at this time.
Several factors in this evaluation include firstly geographic proximity to solar demand or first solar has an energy or competitive advantage in which could mitigate freight related costs.
Secondly, the ability to export cost competitively to other markets.
Thirdly cost competitive labor low energy costs, and the real estate costs.
And finally across competitive supply chains to support the sourcing of raw materials and components.
From a cost perspective, we previously indicated during our December 2017 analyst day that we expect to reduce our 2020 lead line cost per watt by 40% relative to the series for 2016 cost per watt.
We have achieved this target at our Vietnam manufacturing sites and on track to do so in Malaysia by the end of the year.
Our series six factory in Vietnam, which today have been largely unaffected by the coated 19 pandemic.
Our strong leading indicator for the full potential of the entire manufacturing fleets.
Secondly.
We indicated that despite an increase in the proportion of module volume coming from our higher cost, Ohio factories relative to where we ended up 2019, we expect our fleet wide cost per watt to decline approximately 10% over the year.
Despite the unforeseen challenges posed by the pandemic, we remain on track to achieve this objective.
We continue to believe Theres significant headroom and further enhance our competitiveness our series six technology and we relentlessly challenge ourselves on commercializing the next generation a disruptive since film technology.
Simply put we continually strive to accelerate our pace of innovation in pursuit of our near and mid term technology objectives.
In the near term we are focused on successfully implementing our copper replacement program.
In our lead line during the second half of 2021 and fleet wide during 2020 to.
This implementation is expected to further increase the series six energy advantage due to increased wateridge significantly reduce long term degradation and improved temperature coefficient.
Each of these improvements is expected to create value for our customers, which will facilitate series six bookings in 2022 in 2023 with the module bins, increasing from 460 watt to 480 watts over this period.
Of note in July we produce the first copper replaced series six modules, which will be utilized to initial two for initial preliminary testing and validation.
While we remain largely on track for implementation.
Hi, Good 19, and technical challenges remain as a risk to the project completion timeline.
In the mid term, we remain focused on achieving our goal of 500 Watt module, which is that a standard test condition glass area efficiency of 20.8%.
This technology enhancement will further increase the customer value proposition and cost competitiveness as series six is important to note. Unlike recently announced increases and Christmas Silicon wattage made possible through module size increases.
The plan series six watch increase is expected to be driven by a 15% increase in energy density without changing our model form factor.
In other words, we do not see increasing our customers balance the system or design costs in order to achieve the 500 lateral.
Additionally, the benefits of improved temperature coefficient and significantly reduce launch and degradation coupled with our continued spectral response advantage will amplify the benefits of increased energy density and are expected to increase lifecycle energy beyond 15% without adding cost to the module device.
As shown on slide eight in support of our near mid and long term goals. We have recently announced a series of changes in our technology and manufacturing senior leadership.
Firstly market Sparklers has been appointed co Chief Technology Officer, alongside Rafi Garabedian.
Our CTO since 2012.
And will join for sellers executive leadership team.
Markets will drive our series six platform device and efficiency improvement roadmap.
This will enable rafi to focus on advanced research and development to create the next disruptive Cadtel technology beyond series six.
Particular focus will be to evaluate moving beyond a single junction device and leveraged the high band GAAP advantage of cantel into a multi junction device.
The objective would be to create a market leading high efficiency technology that remains energy advantage.
Secondly, as recently announced diamonds young our Chief operating officer has decided to retire effective April 2021.
Simon has played an essential role in establishing the company's international series six module manufacturing footprint with five announced factories currently in production and a six on track to commence production during the first quarter of 2021.
I appreciate as time is invaluable leadership and his many significant contributions to for solar over the years Tyler will continue to serve as COO. During his eight month transition period overseeing certain priority projects.
In addition, during this transition time it will transfer the majority of his responsibilities to Mike Alisky Chief manufacturing Officer.
Console Kumar Vera Chief Manufacturing Engineering Officer.
And Pat Buehler, Chief quality, and reliability officer, each of whom will join for sellers executive leadership team.
We believe the addition of markets might come Tal and Pat to the executive leadership team will enhance our manufacturing technical and commercial capabilities and set the company up for continued growth.
Ill now turn the call over Alex who will discuss our second quarter financial results and outlook for 2020.
Thanks Mark.
Starting on slide nine I'll cover the income segment highlights the second quarter.
Net sales in Q2, a 642 million an increase of 110 million compared to the prior quarter.
The increase was primarily driven by the selling American Kings project, partially offset by lower module sales volumes.
On a segment basis as a percentage of total quarterly net sales model segment revenue in Q2 was 58% compared to 74% in Q1.
Total gross margin was 21% in Q2 compared to 17% in Q1.
The system segment gross margin was 21% in Q2, that's 11% in Q1.
The increase was primarily driven by increased use project sales and higher seasonal production from our power generating assets.
This is partially offset by 22 million a cost increases stemming from unforeseen weather issues.
Slide 19 relates delays and other matters related to our finally PC project mentioned by market earlier.
And we intend to see recover these costs by insurance and other forms of relief.
The module seven gross margin was 22% Q2 compared to 19% in Q1.
This increase was driven by lower cost was sold despite the himax the volume from Ohio factories, and a slight increase in ASP compared to Q1.
While our total module segment gross margin for the quarter was adversely impacted by 13 million of series, Florida into charges, primarily due to severance decommissioning and cost associated with reduced manufacturing volumes are series six gross margin was approximately 25% in Q2.
This included 3 million of coated 19 related costs.
Which reduced our series six gross margin by approximately 1%.
As DNA in R&D expenses total 74 million in the second quarter decrease approximately 10 million compared to track Wilson.
Of note the second quarter total includes $3 million severance cost familiar at an impairment charges related to development projects.
1 million of retention compensation.
Started expense of 6 million in Q2 compared to 4 million in Q1.
In relation to litigation method as initially disclosed on June 3rd we entered into an agreement in principle settling claims and the opt out action from $19 million, resulting in a 6 million litigation loss during the second quarter.
We've since ended the delay definitive settlement agreement.
While we will come from the fact merck's competition. We believed it was in our best interest to conclude with lengthy litigation process and continue our focus on driving the business forward.
Separately. The previously disclose class action settlement agreement received final approval from and was dismissed with prejudice by the court at the end of the second quarter.
By entering into the definitive the settlement grievously ops out and the class action settlement assessment process. The final Securities litigation is behind Us.
Turning started on litigation losses total operating expenses were 87 million the second quarter production, approximately 2 million compared to first quarter.
Interest income of 4 million in the second quarter compared to 9 million. In Q1. This is primarily driven by decline in interest rates, which led to a reduction in yield on our cash and time deposits.
We recorded tax expenses 10 million in the second quarter compared to tax benefits and 89 million in the first quarter.
The increase in tax expense for Q2 was attributable to the discrete tax benefits that recognized in Q1 as a result in the Kazakh and higher pre tax earnings in Q2.
Before I mentioned combination of items I'd say second quarter earnings per share 35 cents compared to earnings per share at 85 cents during the first.
Next turning to slide 10, I'll discuss select balance sheet items in summary, cashman submission.
Our cash and marketable securities unrestricted cash balance ended the quarter at 1.6 billion, an increase of approximately 44 million compared to the prior quarter.
Total debt at the end of the second quarter with 465 million a decrease from 472 million at the end of Q1.
And as a reminder, all outstanding debt continues to project related more come off our balance sheet when the corresponding project is sold.
Our net cash position, which includes cash restricted cash and marketable securities less debt increased by approximately 51 million to 1.2 billion.
The increase in on net cash balances primarily relates to cash collections on systems projects in the us and operating cash flows around module segment.
This is partially offset by capital expenses and other working capital changes during the second quarter.
Net working capital in Q2, which include Noncurrent project assets and excludes cash marketable securities decreased by 76 million compared to the prior quarter.
The decrease was primarily due to the sale of project assets a decrease in accounts receivable relates to a loss remaining in how CPC project and an increase in current liabilities, which includes accrued litigation losses.
Net cash provided by operating activities with a 148 million in the second quarter compared to net cash used in operating activities of 505 million in the prior quarter.
Finally capital expenses were 108 million in the second quarter, which brings our year to date totaled 221 million as we continue our series six ask expense.
Turning to slide 11 on that provide an update the updated perspective on twentytwenty guidance.
As discussed during the made earnings call. We went through our full year 2020 guidance has been provided in February 2000 significant uncertainties, resulting from the coded 19 pandemic.
As a follow up that decision I'd like to discuss how each of those uncertainties has evolved.
Firstly, the number incentive scheme trajectory of coated 19 cases as different across the globe.
For example, Vietnam has been relatively fortunate in experiencing nationals in some cases below 1000.
In contrast to state of Arizona, where for solar is headquartered has now reached 180000 confirmed cases.
The outlook for the spread of individual exposure to the pandemic and the related impact on businesses on the economy in general remains very uncertain.
Secondly, since the previous earnings call local state and national governments have begun easing certain coated 19 related restrictions.
While we've been committed to operate 36 manufacturing in Ohio, Malaysia, and Vietnam throughout the pandemic increases in coated 19 cases of course, some authority to reimposed certain restrictions and they may continue to do so even significantly expand those restrictions.
Fairly today, we have not experienced any significant operational impacts on manufacturing supply chain, although we continue to monitor this risk.
From logistics suspected port congestion has recently improved in Europe in the United States. However, the most significant impact state remains the consolidation of shipping rates, which has resulted in constrained capacity.
We've incorporated this into our logistics trashy, but to the extent, Puerto severely congested or are temporarily shut down our ability to ship modules and received inbound raw materials may be adversely impacted.
For the tax equity and debt markets appear in tax for high quality Twentytwenty projects as demonstrated by our ability to complete the sale of our American Kings project during the quarter.
However, the tax equity commitments of project set to achieve the commercial operation in 2021 appearance.
Covered 19 as for the number of permanent financing institutions to book record allowances for credit losses during the second quarter fighting a significant uncertainty around the profit recovery.
This reduction profitability may reduce the availability of 2021 tax equity capacity or negatively impacted pricing and terms.
Our son streams to project, which has not been sold has an expected completion date in 2021 and will require effects equity investments during that timeframe to be efficient monetized.
We expect visibility into the 2021 tax equity market to continuous improvement. However, the extended the tax equity market remains dislocated we remain strongly supportive of direct pay legislative solution in place in investment tax credits to alleviate the structural market constrained.
Importantly, legislative solution, such as the aforementioned direct cash payment could help mitigate the adverse impact of financing delays, resulting from reduced tax equity availability from third party module customers.
Internationally as it relates to our Japan assets will be made progress as it relates to the sale proceeds completing financing construction and executing asset sales of challenging in this environment.
We're continuing to work with relevant counterparty to facilitate the timely success of these projects sale.
Given the significant uncertainties remain associated with the pandemic and its effect, we feel it's prudent to continue providing the guidance metrics that we believe a largely within our control within reasonable line of sight. This time.
With these factors in mind, our 2020 guide is as follows.
Our full year Twentytwenty production guidance of 5.7 Gigawatts of series six and 9.2 Gigawatts of series for remained unchanged.
We've already achieved our series for production target and year to date, we have produced approximately 3.3 Gigawatts of series six.
No we do not anticipate a further ramp costs and twentytwenty above the 4 million recorded during the first quarter.
Operating expenses forecast, which includes production startup expense has increased by $5 million. We revised range is 345 to 365 million.
While our production startup expense guidance has decreased by 5 million to revise range of 45 to 55 million. This benefit was offset by the previously mentioned 6 million mitigation losses.
3 million impairment charges related to development projects.
Additionally, depending on the timing of previously expected like a key cost savings during the year, we may tracks, the higher under operating expense guidance range.
Finally, our 20 Sunday series, six manufacturing Capex forecast of $450 million to $550 million remains unchanged.
As it relates on module segment, we anticipate sequential improvement in gross margin percentage during the third and fourth courses.
The factors driving this improvement firstly declining cost per watt as we've largely ramped manufacturing are second to higher factory.
Secondly limited revenue recognition from series forward during the second half of the year.
And finally limited incremental severance costs expected during the second half of the year.
While we achieved a 25% to six gross margin in the second quarter, we expect a relatively flat 36 gross margin in the third quarter two at a modest decline in asps offset by a reduction in Costco want.
While we expect a flat statistics with margin third quarter, we anticipate an increase in overall module segment gross margin percentage due to declining series for volumes.
In the fourth quarter, we expect say six gross margin expansion of approximately 300 basis points due to a lower cost toward increased volume sold and a more favorable plant mix.
As we do not anticipate recognize any series for revenue in the fourth quarter. We expect of 36 gross margin will represent overall module segment gross margin.
Of note with shipments of approximately 2.5 gigawatts during first half of the year or expected shipments profiles incrementally back weighted to the third and fourth courses.
As we continue to work with our module customers to mitigate impacts from the current pandemic the remains potential for the timing of module shipments to move across quarters, all over the year end with a corresponding impact to revenue and gross margins.
A 1.2 billion net cash position increased by 51 million previous quarter.
This liquidity position remains a strategic differentiate which enables us to make proactive and strategic investments in technology cost and product leadership during the current market disruption and in the long term.
And tend to maintain the strong liquidity position throughout the could 19 pandemic at this time, we did not expect to draw on our revolving credit facility.
Turning to slide 12 will summarize the key messages from today's call.
First we had Q2 earnings per share 35 cents, an increased our quarter end net cash position.
Second we achieve fleetwide capacity utilization over 100% during May June and July and have achieved on mid term cost for talking a 40% reduction below our 2016 series forecasts and our Vietnam factories.
Thirdly demand for serious six technology remains strong and have continued success, adding to our contract to pipeline. The net bookings at no 0.8 gigawatts since the prior earnings calls and 2.6 Gigawatts year to date.
With a contracted backlog of 11.9 Gigawatts, we remain effectively sold out for 2022 Gigawatts remaining to sell in respect to 2021 supply.
Despite challenges related to the coated 19 pandemic, we're pleased with our operational and financial performance cheating results in line with our pre covered expectations.
And finally, while a significant uncertainty posed by the component and remains we are updating the guidance provided on May earnings call, which includes full year Twentytwenty production guidance of approximately 5.9 gigawatts.
Full year, Twentytwenty capital expenditure guidance of $450 million to $550 million.
And full year 2020 operating expense guidance of 345 to 365 million, which includes 45 to 55 million of startup expenses.
With that does conclude our prepared remarks clinical questions operator.
As a reminder to ask the question you will need to press star one anew telephones to try question first the calendar hash key in standby mode, we compile the keenly roster.
First question comes from.
With Roth Capital Partners. Your line is open.
Everyone. Thanks for taking the questions.
For the bookings you have secured since last earnings call.
Can you share how much is for delivery in 21 versus two and three.
And what are the ace piece for the bookings I think last quarter, you mentioned pricing for 22 in 23 were still good in the Thirtys.
I think you mentioned the deck that it's still attractive so was wondering if you're seeing.
Some pressure, perhaps in the outer years, or if you're still able to maintain.
And then also.
As you think about the bookings in 22, and three and your cost roadmap.
What are your expectations for margins Thats, the ways I know, but.
But wanted to just get a sense for if you expect margins to remain stable in that timeframe or props, especially step down with the section to a one expiring or potentially even see some upside of margins.
Yes, I'll take the bookings ASV and I'll, let Alex handled the margin question.
So.
In what we would turn to the bookings.
Between earnings call, which is basically.
0.8 Gigawatts.
400, so that was.
With our systems business, which is be for shipment since 2022 of in the rest effectively is 2021.
But.
What I would expand beyond that sale and we try to highlight in the call we have about 900.
Megawatts that system effectively final stage negotiations.
In some cases ready designer PEO, some cases subject to some CP in some cases, a letter of intent with this facility.
Locking in the module volume and the model pricing so against that 900, Weve pedigree pricing on all that it's just again there is with the uncertainty and these are all 21 shipments and with the uncertainty.
The availability of tax equity with the uncertainty with any type of legislative fix direct pay type of structure.
People are being a little kit.
Concerned around locking in firm contracts and leaving certain saw modest CPLP into to allow them enough time to assure financings in place in the life such with projects. These are projects that are committed these are projects that have PPA their sites that are ready to go there just finalizing some of the.
Financing components to ensure they have everything locked and loaded around the project.
If you include those projects those projects also have.
Three annual.
ASP. So if you look at the volume that we have for module only that sub 300 or so.
400, or so for 2021 plus that additional 900, they all are still very solid as fees.
We are in vanished situations in the standpoint, as we said we only have about two gigawatts lifted book, our customers know that there are biases and processes to do business with first solar.
Uncertainty of supply and ability to deliver and so we have customers engaging with us proactively. So we can lockup that supplies of idle lockup that 900.
Right now they stayed negotiations I only have abiding gigawatt left for 2021, and our customers one on what to ensure that security and get that in place for the about supply. So my ASP Theres still holding reasonably from we're happy with the ASV.
Behind those there's two more follow up orders that almost get two gigawatt that are associated with that 900 better in late stage negotiations with two separate customers. They have fallen could benefit would like to make in 2022. So I can give you feel where that pricing is right now it's in line with what we said and the last call we had a large order.
Our which have carried volumes into 2022 at would had did have a to handle was in the high twos that also had adjusters for bands at adjusters for.
Moderate module degradation, if we do better than we had guided too so.
Let's look at will be half for last quarter that was brought to US was currently are engaged in the market with around pricing in 2022, we are still pretty happy with how that shape shaping up a lot of things can move and change.
Clearly the strategy some solution to tax equity and capacity because that's going to constrain the market could have adverse indication around projects, but at least from a bookings demand relative asps.
You know, where we're pretty happy given the challenges in the current environment very happy what we're seeing.
Yes, along the on a cost side on the margin size, a long way out as you tend to be giving you guidance and gross margin, but if you try and think around the cost piece at beginning of the year. We said we are looking at a 10% reduction in cost over the 2019 to 2020 year end to year end and we say we're on track to do that we also said that we expected by.
Year end to achieve C series for minus 40% cost reduction target will initially stated back in 2017 at a high volume manufacturing capacity already achieved that by mid year Vietnam factory.
We're tracking well see that in Malaysia, as well and remember that number includes trade warranty as well entertain capacity on those numbers, so cost reduction going pretty well so far and then if you go back to the slightly showed in our guidance go back in February. We gave you a chart. The showed a lot of leathers around cost reduction.
A key one is our cure program, which is going to be increasing losses in much better Marty talked about breaking it out saying fourth exceed a for ATM that 20 to 23 timeframe.
And we're doing that with the module that the same size, you're actually getting increased energy density versus some of what you're seeing in our competitive today, we're announcing very large nameplate what numbers that actually on efficiency basis paying almost no improvement I was just a significantly larger module.
All cure.
It's really important to getting us back here is important and nameplate losses also improves degradation overall energy profile. So when we look through that we think that helps us spend cost hospitals to negate some of the bi facial threat that we've seen but thats only a couple of the ladders and if you look through that same charter mentioned, we talk about yields throughput efficiency bill of material sales right.
And if you do the math on the chart that we gave its toll directionally accurate you get to a point, where we can bring costs down significantly over the next year. So I can't guide you to your gross margin percent at this point, but given what Mark said wireless where we're seeing a sps and we're comfortable with those that were tracking towards the cost reductions that we discussed earlier in the year I'm.
Well, our where we are seeing gross margins coming out on these limitations bookings.
Our next question comes from Brian Lee Goldman Sachs. Your line open.
Hey, guys. Thanks for taking the questions.
First one on the on the gross margins.
The sequential improvement for series shakes.
Not to get too.
Ill sort of nickel and dining here what is the baseline 25%.
With that you reported this quarter, which includes to $3 million at Cobiz related costs are you assuming those cost come off in the back asset. So it's a 300 basis point expansion in Q4 over a clean.
26% baseline and then I guess related to that are there any more ramp costs embedded in Cogs in Q3 in Q4 that after they go away in 21.
So as of now there's no ramp costs.
In Q3 Q4, the only ramp that we saw is 4 million in Q1, a nasty full expected ramp for the year in terms of the expansion. It's still unknown I mean, the number we're giving you hear assumes we may still have some project related costs impacting us in Q3 in Q4. So I think you can look at it really as a 300 improvement from.
From a 25 in the starting point.
Our next question comes from Michael Weinstein with Baird. Your line is open.
Hi, guys.
Hey.
Sure.
Okay great.
You mentioned that Rafi is going to be working on advanced research and development to create the mix disruptive technologies beyond serious exert some preview of that you could talk about at this at this time and other limits the levels of efficiency that you can get out of out of the technology.
This latter headroom silver going on on the efficiency side and the title for entitlement around.
I would tell device.
Yes, rapid roughly 30, who made up remember where our 30 Robbie joins the company.
Decade, or so ago really joined us as part of our advanced research team at that time was leading our efforts.
To evaluate alternatives until materials such as six.
So he is core competencies around understanding really all of the semi conductor devices PD in particular, whether it's Chris and silicon whether its.
Prost guys, whether its cadtel, whether it said all different devices rock is going to deep knowledge and understanding on so.
When we look beyond the current device and series six.
One of the things that we are looking to is one of the one of these inherent advantages that we have with cantel is that from a.
As very high band gap, which means that it's captured significant amount of the.
Some spectrum the life science spectrum might add.
Theres a lot of evolution that could happen with devices or technology in their summer being done in aerospace, where you create a single junction or to a multi junction type of technology, whether it can be a combination of different types of technology to different types of thin film maybe.
Could be in terms with with Chris and Silicon as an alternative.
So one of the rock is going to be looking at is not only existing materials. There can be organic PV that he will be looking at is well different solutions that are evolving frost guys can be looking beyond just a single junction into a multi function type of device. So it's really just evaluating the world spectrum. They are the possible.
As to how do we leverage where we currently have and evolve that beyond what our current capabilities are around the technology. So thats, primarily what Rob is going to be focused on.
Our next question comes from Ben Kallo with Baird. Your line is open.
Hey, guys.
The fall of previous question for retail is.
Just about kautz broad rip cost.
The income associated with Sears or ramp down in the number two how'd you. So your older business, but.
The bulk of business.
How do you saw the first report the bolt.
In the market.
On the number three.
Looking at your your exit rate per se.
You have two gigawatts of sold 2021.
What does that assume for total production cuts I think it's higher than the your main please.
Thank you.
So that the first I'll take the OEM question and then the.
In terms of two gigawatts or 21 relative to what the assumption is that the supply plan.
And then asked can talk about kind of ramp costs in general and then also decommissioning costs related to to series for.
Then look on the on the on end business.
You know, especially now that we no longer have the PC capability will move to a third party, we've kind of separated the development business from the OEM business and the reason I say that is that a lot of the FCC providers that we engage with also want to provide all of them.
So now we created kind of a competitive tension around captive development with maintaining the on M., even though we're using a third party to do EGPC DPC wants to somewhat they have guarantees and other warranties that they provide.
Cod and they also a number of preferred to do our down.
For that horizon, and some more to do a strategically longer term.
So for us because of the separation of VPC from the develop businesses created this natural separation between development and over now.
So.
It's not as a natural as it may appear maybe on natural from how we first evolved as we said theres the capabilities in cycles innovation. That's evolved in the Allen end space today as much dividend in the majority for started off in few have those full capabilities.
So it's kind of separated through that for that reason and.
If we as we look at strategic options for the systems business, even if we end up partnering or doing something different retaining the interest in India that all business, it's not as critical to have the owners capability as it was.
A year is going in to some extent, we prefer to even do today is just do those element to get a cycled site. He has made to notice to proceed staple that with a module agreement and then step out of the equation I really don't want to deal with for the third party BC I just want to where we can create the greatest on a value turnkeys over to third party VCM.
Well down into a long term owner.
Thats a better process around on into how we can top rated the with two gigawatts of 21, we'll have nameplate capacity and.
In 2021 of eight Gigawatts, our supply plan right now is about seven in the haptics I think we indicated in prior communication that we between seven three and 77. So the mid 0.7 to have that kind of what we're tracking to right now so two gigawatts left to go out of.
Seven a half so we've got five and a half book I got almost half of that two gigawatts in late stage negotiations with negotiated pricing finalizing terms and conditions. So we're pretty good line of sight to make sure. We did sell through that 20 was pipeline.
Yes, thats on the ramp side on ramp up that mentioned before formally on ramp up costs for the fully take in Q1 numbers are expected in terms of ramp down cost. The majority of ramp down costs of hit in Q1 in Q2 will we'll see a few single digit million still come through in terms of treaties decommissioning cost a little bit of ongoing set.
Frontrunner attention that the vast majority of that cost has been taken in the first half Leah.
Our next question comes from Queens, Nancy You line is open.
So George good afternoon, everyone appreciate it.
Just wanted to follow up here on first off if you could talk about to the backdrop here for systems business you guys talked about some pressure on that probably towards the lower end can you elaborate on what's driving that I am hearing you right, you're specifically alluding to tax equity, but I just want to understand what's driving that today and what your expectations are.
With respect to that evolving over time, and then secondly, if it can come back to bookings trajectory.
Your turn but more importantly longer term how do you think about signing into 20 to 23, given the potential for further tax credit extensions et cetera, just want to extended theres still pressure to sign into those last couple of years 30 percentage to see the weight structured now.
Clearly and just to clarify your first question you said lower end of systems can you just clarify what you mean better.
Just to some margin pressure on the system, maybe more broadly as you as you describe your comments.
Well first I would need to maybe little bit on LNG, Let's say I think what we said just over maybe clear is we get referenced the OEM business that we gave a range of of gross margin expectations that we previously had established for OEM and the now ranges tender 30% from the based on our analyst day in 2017, we indicated that.
What we've seen in the market is that the actual gross margins on the OEM business have trended towards the lower end and its combination two things increased competition plus lower PPA prices. So PK prices have continued to come down really in order to drive to a lower elsea, we everything whether it's the module the inverter the the owner.
Operating expenses whatever it is all have been kind of under pressure and so thats that was the comment I think we reference towards the lower end, but range around our them and we are seeing that come down part of the pressure because of lower PPA prices.
Look I think the tax equity and the implications that that is that it has.
Availability is going to be a challenge so it's going to be mainly available for.
Hi quality projects, plus because it's a constraint I would I would expect pricing to actually increase which actually works against the PPA prices in potentially would require higher equity prices in order to create market clearing prices, but I'll, let Alex talked more about tax equity what we're seeing in that regard, yes, just one come on the island.
Tax equity as I think you've seen margins come down and Thats been also commenced in the risk profile decrease so if you look at it on a risk adjusted basis I think is still value in that business, but overall gross margins will come down as owner decides keep more risk on that side of legend.
Our it comes with tax equity I think what we're seeing as we mentioned before in the script.
This capacity that was a 2020 deals thats, partly a function of bank summing up their views on capacity for the year, partly a function of them the project pushing out to the right, which is pretty natural in any given year.
What we're seeing in the current market, though is that the major players who lead transactions. When you look at 2021, they either have already booked out of their capacity.
Or they're just sorry, I'm certainly around early stands alone has made to play the taken loan loss reserve. So far in 2021. Those are counting reserve today I think you may start see them crystallize international losses in 2021 that uncertainty around that.
You combine that with.
The existing commitments that Theyve made and then also this time of year typically tend to get a constraint human resources at the bank focus on closing out the as I have to be done by the end of year, what we're seeing as there isn't really committed capital available for next year.
On top of that I have the syndication market become constrains the players who don't normally lead deals that have participation pieces and hit a smaller capacity will set a lot of uncertainty thats that market dried up and put more pressure on lead players.
And what that means.
For us from a value perspective, do you think about some things too.
Like other large high quality projects and experienced develop as I think tax equity will ultimately be available for that project.
Got it may not be and been able to get committed capital until late this year early next year, which will delay the timing of the sale if that happens and as Mark said, you could see impact on pricing and or other terms, which can also impact value.
So I think that that's one of the constraints for US and then from our perspective, obviously, we sell modules.
To customers, who also rely on having tax equity have that projects move ahead, and if we see significant dislocation in the market.
Could be the difference between those projects moving ahead on schedule being delayed or ultimately in being canceled so that impacts to us there on the module side of business as well and overall that's why when we look at it we believe a legislative solution here is the best buy deal with a constraint.
Fortunately if you look at the current drafted a Republican proposals put out last week. It doesn't address the tax equity issue, but as a long way to go before that they'll becomes lonestar has its about provision will be addressed through.
Negotiation about reconciliation, yes, I think the other question you had Julian was around volumes in 2000 June 23, and how do we think about booking that volume off relative to.
Potential extension of the ITC as an example on.
Between.
22, and 23, I think where we sit right now live in north of three gigawatts or so that is box in that window got another about gigawatts Edson late negotiations as well that's got committed pricing around it.
And Thats so call it four gigawatts that that we've got a stake in the groundwork for during that window. That's against about 16 letter. So gigawatts of supply that we'll have over that period of time, so maybe where a quarter or that somewhat committed to are locked into you that book door with commitment around pricing it's pretty.
We still room to go and really we still will be very patient in that window.
We'll look for good pricing, so knowing where our cost curves contigo and where we can capture the best pricing at play to our strength like we always do hot fuel requirements.
Texas being another area that we've talked to.
Talk before about given sell cracking issues and an inability of some of our competitors to get projects underwritten by insurance carriers are just a general cost insurance being significantly higher so there's a number of things that we do and use that play to our strengths.
It is all in that with our new technology with our copper replacement product and we can capture good value for the technology started securing up some of that volumes and that window.
Clearly, we'll do that but what I think about four gigawatts relative to supply of 16, I got lots of Optionality still left that if there is an extension on the ITC the creates additional pigment curve and potential a more stable or better pricing environment, we start to take advantage of that as well.
Our final question will come from our lunch with Oppenheimer. Your line is open.
Thanks, so much stress or are you seeing the impact of lower cost capital start to creep into any of the PA.
In the summer project economics at this point.
Machine.
Prices come down at all are you seeing a little bit of given some of the project public construction customers.
Yes.
What I would say is you know it's up I guess, we use state court new stayed true to what you do and you try to create value and in where you can differentiate yourself, that's where you engage in so if I look at the PPA price that we have four.
Well, we just cleared with a large fortune 500 customer.
It's the terms conditions structure. The price is a premium relative to what I think youre seen in the market right now and in part of that just being is that particular counterparty wanted to do business with first solar they loved our sustainability approach it become.
You know kind of our.
Full lifecycle management of our product.
Option to final recycling and how we engage Matt sampling, how we think about our CFO to footprint. Our water usage is just credits so nicely in what they want and that's core to them as well and so those things put us in a position to capture better value and if so different than kind of large opportunity with a particular.
Customer.
Looking to procure over a gigawatt of volume over the next several years ago and they want to do business with an American company right. They love. The fact that we have R&D and manufacturing the us and they're not worried about the lowest possible module price and that example, right we create value through our technologies their capabilities and they're willing to partner with us in that regard another deferred to partner so we.
Try to stay disciplined in that regard as it relates to our there yet the on the debt side is that somewhat being positively impacting where people could think through clearing of PPA sort of underlying assumptions around that that would you still have this uncertainty in the us around tax equity I would argue that they can offer.
Sales and spreads maybe moving a little bit as well and you probably get back to the same position that year end to start from so I don't think leasing a real inflection point, yet as it relates to cost and get cost capital driving further lower fuel prices.
This ends our time for the question and answer session. This concludes today's conference call you may now disconnect.
Okay.
Yes.
Our.
And.
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