Q1 2021 First Solar Inc Earnings Call
[music].
Good afternoon, everyone and welcome to first solar first quarter 2021 earnings call.
This call is being webcast live on the investors section of <unk>.
First solar website at investors Dot for first solar Dot com at this time, all participants are in a listen only mode.
After this as a reminder, today's call is being recorded.
Now I'd like to turn the call over to Mitch Ennis from first solar Investor Relations. Mr. Ennis you may begin.
Thank you good afternoon, everyone and thank you for joining US today the company issued a press release announcing its first quarter 2021 financial results a copy of the press release and associated presentation are available on first solar is web site investor Dot first solar Dot Com with me today are Mark Widmar, Chief Executive Officer, and Alex Bradley Chief Financial Officer.
Mark will begin by providing a business and technology update Alex will then discuss our financial results for the quarter and provide updated guidance for 2021 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 among other risks and uncertainties the severity and duration of the effects of the COVID-19 pandemic.
We encourage you to review the Safe Harbor statements contained in today's press release and presentation for a more complete description of it is now my pleasure to introduce Mark Widmar, Chief Executive Officer Mark.
Thank you Mitch good afternoon, and thank you for joining us today.
I would like to start by thanking the first solar team for delivering a solid first quarter, our operational and financial results were strong and market demand for our series six technology continues to be robust.
Operationally.
Our second series six factory in Malaysia exited ramp period named.
Nameplate manufacturing capacity has increased to seven nine gigawatts and.
And we are now consistently producing 455 watt modules.
Commercially we have secured for eight gigawatts of year to date net bookings, which include two nine gigawatts since the previous earnings call.
Financially we reported module segment gross margin in line with our Q1 guidance and earnings per share of $1 96.
Which includes the completion of our U S project development and North American O&M business sales.
Overall I am pleased with our strong start to the year, which has positioned us to deliver our annual earnings per share guidance.
Turning to slide three I will provide an update on our series six capacity ramp despite unplanned downtime and a temporary logistics driven bill of material shortage.
Blasier.
Along with planned downtime for throughput and technology upgrades.
Which combined adversely impact cost per watt by approximately half a penny.
We delivered strong manufacturing results for the first quarter.
On a fleet wide basis in March and in April month to date.
Megawatts produced per day was 22 and 'twenty two.
Which represents a 17% and 27% increase compared to December 2020.
Capacity utilization was 92% and 99%.
<unk> being impacted by the aforementioned planned and unplanned downtime.
Manufacturing yield of 96, 7% continues to show strength in light of the ramp of our second series six factory in Malaysia.
Which achieved manufacturing yields of approximately 93% 97%.
As previously mentioned, we started commercial production of our $4 55 Watt module.
At both our factories in Malaysia.
And our fleet wide average watts per module improved to $4 42, and $4 45 watts.
This manufacturing performance has been a key driver of our cost per watt reduction.
And gives us further confidence as we execute on our cost reduction roadmap.
It is also important to put our recent performance into context.
Comparing to April of 2019.
Through April of 2021.
Month to date, our average watts per module has increased by 26 watts.
Megawatts produced per day has increased by 144% nine percentage points.
I am pleased with what the team has accomplished.
However, as we drive towards our mid term goal of 500 Watt module.
Increasing throughput by 12% compared to a re rated capacity utilization baseline and increasing manufacturing.
Yield to a midterm target of 98, 5%.
We have an opportunity to significantly reduce costs through disciplined manufacturing.
As a company, we have demonstrated disciplined execution and agility throughout the startup and ramp of our series six factory Inc.
Including gathering new learnings from each factory rollout and utilizing them in the next.
This culture of continuous improvement enables us to increase implementation velocity and reduce a ramp period.
While it took our first series six factory in Ohio, approximately 22 months to achieve throughput in line with its nameplate entitlement.
Our newest factory exited ramp period, and only one month's time.
The consistent improvement of our factory implementation process gives us operational confident as we evaluate the potential for future capacity expansions.
We believe the combination of a differentiated technology and our balanced business model of growth liquidity and profitability as a competitive differentiator and will continue to enable our success.
Three years ago in April 2018, we commenced commercial production at our first series six factory and today, we have established a series six factory footprint.
Through which we have the potential capacity based on our existing efficiency and throughput plans.
Looking forward strong demand for series six.
Our compelling technology roadmap, our strong balance sheet and a largely fixed operating expense cost structure are each catalyst as we evaluate the potential for future capacity expansions.
While we have made no such decision at this time, we are targeting to make a determination by our Q2 earnings call.
From a shipping and logistics perspective, we have experienced Michael stone port congestion in the United States.
Along with logistics challenge.
Im just stemming from February as winter weather events in southern United States.
As a result, certain module deliveries planned for the first quarter were delayed.
And given ongoing port congestion.
We see potential for similar delays in the second quarter, which could result in delays in module revenue recognition.
While the first declined significantly in the past decade sales rate has largely remained fixed on an absolute dollar basis.
As a result sales rate has become more meaningful percentage of the cost per watt for.
For example, in Q4 last year and Q1 of this year sales freight and warranty reduced.
First our module segment gross margin by seven 8% respect effectively.
Note this highlights for markets with large recurring demand such as the U S, India and Europe, the importance of having in country or in region manufacturing, which can significantly reduce the cost of sales right.
As initially highlighted during our February earnings call, we continue to anticipate elevated shipping rates in 2021.
We continued to partially mitigate the impact via the implementation of the following initiatives for.
Firstly as we improve module efficiency, we benefit from an increase in <unk> for shipping container and a corresponding decline in sales rate per watt.
Secondly, as we implement profile of our frame injunction box by approximately 10%.
Enabling an increase in the number of modules per shipping container.
Sure.
Thirdly, we intend to expand our distribution network footprint in the United States.
We anticipate will increase domestic inventory buffers.
Further reduce explore exposure to spot shipping rates and provide greater flexibility, while reducing shipment timing risk for our customers.
Implementation of these initiatives is important in order to help mitigate the effects of the challenging shipping market and achieve our 2021 cost per watt reduction objective.
From a supply chain perspective, our strategy emphasizes long term agreements that reduce exposure to spot pricing for commodities and raw materials.
For example, our glass procurement strategy, primarily relies on fixed price contracts and partnerships with domestic suppliers.
This approach helps derisk the value our of our contracted backlog and provides greater certainty that we will be able to meet our expected profitability.
Our approach to tellurium is similar we secure our supply needs through multiyear fixed price agreements, while striving to reduce cash flow usage per module through optimization of our vapor deposition process.
<unk> is a key component of our semiconductor material. It is a minor component of our cost per watt given our cash sales for thin film is 3% per thickness of the human hair.
Also as part of our global high value PV recycling program, we were able to establish a circular economy by recovering more than 90% of the semiconductor material for use in new for solar modules.
Although such recycling.
On a large scale is still anticipated to be many years out given the expected useful life of our modules. This has the potential to significantly reduce our ongoing flurry and cadmium needs in the future once power plants using first solar modules reached the end of their useful life.
Aluminum, which is used in the construction of our frame as recently experienced a price increase to above pre pandemic levels.
For the hedge structure, we put in place has partially mitigated this impact we anticipate some cost challenges related to aluminum during the year.
However, as part of our series six plus implementation, we anticipate reducing our frames profile and aluminum usage by 10%, which we expect will mitigate a portion of this cost increase.
Finally, despite the previously mentioned delays of certain module deliveries in Q2, and the result of our continued manufacturing execution, an affirmation risks reduce supply chain approach.
We achieved our module segment gross margin target in Q1.
Additionally, while costs are certainly remaining for certain bill of materials, we are tracking to achieve our targeted 11% cost per watt produced reduction between where we ended 2020 and expect to end 2021.
While we intend to mitigate much of this impact related to the challenging shifting in market market. Our revised target cost per watt sold reduction is 6% to 7%.
Turning to slide four and.
In Q1, we completed the sale of our contracted Sun streams, two and non contracted tonnage streams for five projects to the long Road energy.
In April we completed our on contracted sunscreen, <unk> III project too long road as well.
Across these four projects longer than intends to utilize approximately a gigawatt of series six modules of which 785 megawatts represent new bookings since the last earnings call.
As it relates to our systems business in Japan, our existing team and competitively advantage core project development skill set of siting permitting interconnection and securing long term feed in tariff contracts.
<unk> has positioned us well in the market today, we have an approximately 320 megawatt systems backlog in Japan, which includes 55 megawatts of new bookings since the February earnings call.
This backlog is a reflection of our recent success, averaging approximately 100 megawatts per year assistant booking in Japan between 2018 and 2020.
Looking forward in the near term, we have an opportunity to add to this backlog with approximately 40 megawatts of Japan systems opportunities with feed in tariff rates secured as they are pending satisfaction of certain permitting requirements.
Across the total portfolio, we have the potential to capture approximately $250 million of gross margin and the next.
Three to five years.
With an approximately $15 million per year overhead cost structure, we anticipate the sell down of systems projects in Japan will contribute meaningfully to our mid term operating income.
With an actual commitment to carbon neutrality and limited domestic.
First energy generation.
The market fundamentals in Japan are favorable to the continuing growth of solar.
We continue to build our pipeline of postpaid and tariff opportunities that could target treat and premiums or corporate PPA opportunities as the market matures.
Before discussing our most recent bookings and pipeline opportunities.
I'd like to discuss several domestic and international policy updates.
At the end of our March President Biden unveiled and infrastructure proposal that emphasize transit revitalizing power grids, and vastly expanding clean energy, while creating millions of jobs and position in the United States to Outcompete China.
Additionally, the plan is intended to revitalize domestic manufacturing secure the U S supply chain invest in R&D.
And train Americans for the jobs for the future.
This is the most far reaching federal proposal for programs that curb greenhouse gas emissions and address climate change.
As the only alternatives to crystalline silicon technology, among the 10 largest solar module manufacturers globally.
With a premier vertically integrated manufacturing process.
And a differentiated <unk> technology, we are uniquely positioned to support domestic energy independence in the United States and play a leading role in this plan.
We are the largest solar module manufacturer in the United States.
And directly employ over 600 U S based associates.
Also our domestic supply chain supports thousands of indirect jobs.
For example, we procure our float glass from and MSG facility, approximately 10 miles from our factory Inc. Perrysburg.
As the first new flow glass of wine in the United States and 40 years.
As a result of this investment in ESG has created long term and high quality manufacturing jobs at a domestic supply chain of their own.
MSG soda ash, which is the primary material used in glass manufacturing is procured from a supplier in Wyoming, which is a state that has historically been the largest producer of coal.
Pace of innovation.
Core to our success.
Which starts at our R&D lab facilities in Silicon Valley in Ohio.
As a reflection of this commitment since our IPO, we have cumulatively invested over $1 4 billion in research and development as.
As the only thin film module manufacturer of scale with a manufacturing process that is handled entirely in each of our six factories, we own the end to end on the intellectual property and trade secrets for our CAD Tel technology.
We believe that remaining nine largest PV.
<unk> manufactures all utilize the same semiconductor material.
Additionally, none of these manufacturers are fully integrated relying on varying degrees on third party sourcing and the intellectual property of upstream poly silicon ingot wafer and cell manufacturers.
While it's difficult to measure the value of the past subsidies that the Chinese solar industry receive these subsidies serve to artificially deflate, our competitors' cost per watt.
Resulting in a marketplace that undervalues innovation, and where technologies do not compete solely on their own merits.
Despite this impairment and outrageous lack of fair trade.
The advantages of our vertically integrated manufacturing process and differentiated <unk> technology, leading to what we believe to be the lowest module manufacturing cost structure in the industry will continue to empower our success.
With the section 201 tariffs currently scheduled to expire in February of 2022.
The buying administration has a natural windows to pursue policies that address the root cause of the problem.
China's unfair trade practices.
Accordingly, we continue to advocate for an industrial policy that identifies cleantech manufacturing as a national security strategic priority to advance U S energy independence.
We believe that this type of policy would be promoted through incentives for domestic manufacturing continued investment in advanced technology closing by American loops and tariff reform.
Turning to slide five I'll next discuss our most recent bookings in greater detail.
Leading corporate buyers have expressed concerns that due to the decentralized nature of the crystalline silicon supply chain. They are unable to ensure that the solar modules in their systems for them, which they buy power, we're not manufacturing used allege force labor.
While our series six energy quality and environmental advantages are all key differentiators customers increasingly increasingly are ascribing value to our vertically integrated manufacturing process supply chain transparency and zero tolerance for the use of force labor and our module manufacturing process and supply chain.
While the pricing environment remains competitive these catalysts have created bookings momentum for deliveries in 2022, 2023 and beyond with customers seeking to derisk their projects.
Accordingly, we are pleased with our strong year to date net bookings of four eight gigawatts.
Which includes $2 nine gigawatts since the February earnings call.
After accounting for shipments of approximately one eight gigawatts during the first quarter, our future expected shipments, which extend into 2020 for our 14 eight gigawatts.
Included in our one eight gigawatts of Q1 shipments are approximately two gigawatts of series for that was previously shipped to safe Harbor the investment tax credit.
But were transferred to a third party during the quarter in conjunction with the sale of our U S project development business.
Accordingly.
Comparable Q1 shipment number is approximately one six gigawatts.
Including four eight gigawatts, a year to date bookings and <unk> four gigawatts of upside volume related to previously announced purchase order from intersect power.
We are largely sold out for 2021.
Have six four gigawatts for potential deliveries in 2022.
And three gigawatts across 2023 and 2024.
Overall the market remains competitive we are pleased with the pricing levels that we are securing in 2022 and 2023 for our series six plus and <unk> products.
Although there remains on track and contracted volume yet to be booked the asps across our aforementioned six four gigawatts of volume for potential deliveries in 2022 is only 11% lower than the volume to be shipped in 2021.
Slide six provides an updated view of our global potential bookings opportunities.
Which now totaled 16, five gigawatts across early to late stage opportunities through 2024.
In terms of geographical breakdown.
North America remains for the region with the largest number of opportunities at $12 nine Gigawatts Euro.
Europe represents one two Gigawatts, India represents one two Gigawatts South America represents seven gigawatts with the remainder in other geographies.
As a subset of this opportunity is our mid to late stage bookings opportunity of seven eight gigawatts, which reflects those opportunities we feel could book within the next 12 months.
This subset includes approximately five four gigawatts in North America.
One two gigawatts in India.
Six Gigawatts in South America.
Three gigawatts in Europe.
And the remainder in other geographies note. This represents a decrease from our prior earnings call, which is largely due to our recent bookings momentum.
Finally note included in the seven eight Gigawatts is a one gigawatt order for U S customer that just hours ago, we booked.
Including this booking in our contracted future shipments. It is just shy of 16 gigawatts.
I will now provide an update on our technology roadmap.
As previously disclosed we launched our series six plus program leveraging our existing series six toolset, which increased our module form factor by approximately 2%.
And our top production been by approximately 10 Walker 10 watts.
We first implemented this program at our newest series six factory in Malaysia.
Which is now consistently producing 450 watt modules.
And we remain on track for fleet wide implementation of series six plus for the fourth quarter of this year.
As previously announced our series six cure modules offer an industry, leading 30 year, 2% annual warranty degradation rate.
Which is up to 60% lower than conventional crystalline silicon products.
Additionally, we anticipate improving module efficiency, enabling a top production bin of $4 60 to $4 65 watt by the end of 2021.
We anticipate this lower degradation rates combined with improved temperature coefficient and superior spectral response will build upon our existing energy advantages, especially in hot and humid climates.
As previously indicated cure significantly increase as series six competitiveness against bifacial modules.
As a result of the aforementioned advantages as compared to a leading crystalline silicon bifacial module, we estimate that our cure module can produce up to 10% more lifecycle kilowatt hours per kilowatt installed.
And certain climates with extreme heat and humidity.
Finally, we remain on track to implement sure and our lead line by the fourth quarter of this year.
In fleet wide by the end of the first quarter of next year.
As part of our R&D efforts are care program successfully removed copper from our CAD sales vapor deposition process.
This enhances the long term stability of our care modules.
And based on initial performance in the field and an accelerated life testing demonstrates a near zero annual degradation rates.
Giving PV power plants have useful life approaching 40 years, a reduction in the annual derogation rates can contribute to meaningfully higher lifetime energy.
Sure along with first solar or other industry first and only product warranty.
Specifically covers power loss from cell cracking are recent examples of innovations that enhance our competitive position in the market.
Finally, we are continuing to evaluate the potential to leverage the high band GAAP advantages of CAD Tel and a tandem for multi junction device at.
The tandem device has the potential to be a disruptive high efficiency low cost with an advantaged energy generation profile leveraging many of the innovations in our cash sales technology analogy roadmap.
Additionally, we believe a thin film semiconductor will be the key differentiator to achieve the highest performing tandem PV module.
And now I'll turn the call over to Alex who will discuss our first quarter financial results and 2021 guidance.
Thanks, Mark starting on slide seven I will cover the income statement highlights for the first quarter.
Net sales in Q1 was $803 million, an increase of $194 million compared to the prior quarter and the increase in net sales was primarily due to an increase in systems revenue driven by the tonnes grading two four and five projects.
On a segment basis, our module segment revenue in Q1 was $535 million compared to 548 million in the prior quarter.
Of note given the son seems to project was in construction at the time of sales the majority of for modules and recognized as revenue in the systems segment.
Gross margin was 23% in Q1 compared to 26% in Q4 of 2020.
Systems segment gross margin was 31% in Q1 compared to 18% in Q4 for 2020 and this increase was primarily driven by the aforementioned project sales in Q1.
Yes.
Despite the aforementioned delay in certain module deliveries as well as higher than expected logistics costs.
Q1 module segment gross margin was 19% which was in line with the guidance we provided on the prior earnings call.
Our module segment gross margin in Q1 includes $1 million of charges associated with the initial ramp from our new factory in Malaysia and for millions of Underutilization expense stemming from planned downtime for throughput and technology upgrades.
Rapid underutilization expense in total reduced module segment gross margin by approximately 1%.
Also as a reminder, sales strength warranty are included in our cost of sales and reduced module segment gross margin by eight percentage points in Q1 compared to 7% and six percentage points in Q4 and Q3 accounts.
Despite utilizing contracted routes minimizing changes and using a distribution center, we incurred higher rates. During Q1. He is a constrained container availability in the global shipping market.
SG&A and R&D expenses totaled $72 million in the first quarter, a decrease of approximately $13 million compared to the prior quarter.
This decrease was primarily driven by a $6 million decrease in development project impairment charges between Q1, and Q4 for 2020 and lower share based compensation expense in Q1, which was partially offset by $2 million liquidated damages related to a U S development asset in Q1.
Production startup, which is included in operating expenses totaled $11 million in the first quarter, a decrease of $5 million event for the prior quarter.
This decrease was driven by the start of production of our second series six factory in Malaysia in February.
Whilst acknowledged the widespread use of non-GAAP financial measures across financial markets, We recognized 17 comparability.
Consistently providing historical financials for guidance on a GAAP basis combined for analysts and investors.
We also appreciate the need to understand noncash and certain onetime costs in calculating valuation metrics and.
And we will therefore as appropriate continue to highlight many of these items and in this context Q1 operating income of 252 million, which included depreciation and amortization of 63 million share.
Share based compensation of $3 million ramp.
On the utilization and production startup expenses totaling $16 million.
And a gain on the sales of our U S project development in North America, and O&M businesses for $151 million.
In Q1, we realized a $12 million gain on the sales of certain marketable securities associated with our end of life module collection and recycling program within the other income line on the P&L.
We recorded tax expense of 46 million in the first quarter compared to a tax benefit for $66 million in the prior quarter.
And the increase in tax expense for Q1 is attributable to an increase in pre tax income and a discrete tax benefit in Q4 for 2020 of $61 million associated with the closing of the statute of limitations on uncertain tax positions.
Combination of the aforementioned items, let's say first quarter earnings per share of $1 96, compared to $1 eight in Q4 of 2020.
Yes.
Next turning to slide eight I'll discuss select balance sheet items and summary cash flow information.
Our cash cash equivalents marketable securities and restricted cash balance ended the quarter with $1 8 billion, which was largely unchanged compared to the prior quarter.
Several factors impacted our quarter end cash balance.
While we completed the sale of our U S project development business and certain equipment on March 31st for an aggregate transaction price of $284 million. The proceeds from the transaction we received in early April.
Secondly, as previously mentioned, we sold certain restricted marketable securities associated with our end of life collection recycling program for total proceeds of $259 million and whilst we intend to subsequently reinvest these proceeds as of quarter end. They were included on the balance sheet as restricted cash.
Thirdly, whilst we completed the sale of our Sunshine, two 4% and five projects during the quarter.
The contemplated payment structure. The closing of these transactions did not have a significant impact on our quarter end cash balance.
And finally, the proceeds received from the sale of our North American O&M business were offset by operating expenses and capital expenses in Q1.
Total debt at the end of the first quarter was 257 million a decrease of $22 million from the end of Q4.
This decrease is driven by the payment of a loan balanced for mature during Q1 and was partially offset by loan drawdown for projects in Japan.
As a reminder, all of our outstanding debt continues to be project related and will come off our balance sheet when the corresponding product sold.
Our net cash position, which includes cash cash equivalents restricted cash and marketable securities less debt increased by approximately 25 million for one 5 billion as a result of default mentioned factors.
Net working capital in Q1, which includes non current project assets and excludes cash and marketable securities increased by $423 million compared to the prior quarter.
This increase is primarily driven by a $472 million increase in accounts receivable related to our U S project development business and a sun streams to sales, which was partially offset by a decrease in project assets.
Net cash used by operating activities was 279 million in first quarter, which includes the aforementioned increase in accounts receivable related to the payment timing of our U S put into that business and some changes to sales.
And finally capital expenditures were $19 million, both quarter compared to $89 million from the profit growth.
Continuing on to slide nine I'll next discuss 'twenty to 'twenty one guidance.
Our Q1 earnings provided a positive stuff here, but we are leaving our EPS guidance unchanged for the time being largely due to the flow.
Firstly, whilst at the time of our prior earnings call, we anticipated a gain on the sale of our U S project development, and North American O&M businesses of $135 million to $150 million $151 million.
Secondly, due to the Swift ramp of our second series six factory in Malaysia, The factory quickly exited its ramp period.
As a result, we anticipated reduction in our full year ramp expense, which we anticipate will be partially offset by an increase in production start up expense.
So I think we also have strategies in place to mitigate the potential negative effects of higher costs, including sales rate and aluminum are mitigating strategies are effected and authentic anyone guidance.
The time of the February earnings call, we anticipated sales rate would reduce our full year 2021 module segment gross margin by 7% to eight percentage points.
Whilst we continue to mitigate the effects of high shipping rates through improved efficiency expansion of our distribution network and implementation of synergies plus we currently anticipate sales strength will reduce our 2021 module segment gross margin by seven 5% to eight five percentage points 50 basis point increase from the prior earnings call.
Also whilst the hedge we put in place and mitigated some of the effects of higher commodity costs.
Certainty relating to future cost is considered in the low end of our guidance range.
Whilst we are facing near term cost challenges predominantly relates to sales rate a confidence relates to our previously disclosed midterm cost per watt.
For reduction roadmap remains unchanged.
These factors in mind, we are updating our 2021 guidance as follows the guidance of two for five to $2 55 billion is unchanged.
Our updated net sales guidance to eight five to $3.0 billion to $5 billion, which reflects a $25 million increase to the high end of our systems revenue guidance.
Our module segment gross margin guidance is $565 million $615 million, which.
This represents a $15 million and $10 million reduction respectively to the low and high end of our previous guidance range.
This revision reflects our current expectations as it relates to commodity and sales freight costs, which was partially offset by a reduction in rent related expense.
Note as a result of these costs, we anticipate our Q for module segment gross margin was approximately 25%.
This anticipated module segment gross margin includes $10 million Underutilization expense relates to factory upgrades, which is expected to reduce module second gross margin by approximately 2%.
We also anticipate approximately 60% of our module segment gross revenue for the year.
We recognized for the second half of the year.
Our updated systems segment gross margin guidance for the $130 million for $160 million, which reflects a $10 million increase for the high end of the range to use for potential recovery at the total systems cost.
<unk> of which we have already received.
We anticipate the majority of our remaining full year systems segment revenue and gross margin will be recognized in the second half of the year.
On a revised total gross margin guidance is 695 million for $775 million, which reflects a $15 million decrease to the low end of the range.
SG&A and R&D expenses of 265 for $275 million.
Production startup expenses increased by $5 million and as a result of operating expense guidance range of $285 million to $300 million is unchanged.
Operating income guidance of 545 million to $640 million is unchanged.
As anticipated depreciation and amortization of 263 million.
Share based compensation of $21 million.
On the utilization and production startup expenses totaling $61 million to $66 million.
And the gain on the sale of our U S project Mike.
The North American O&M businesses of $151 million.
Instead of $100 million to $120 million is unchanged and includes approximately 34 million of expense related to the sales of our U S project development and North American O&M businesses.
Turning to <unk> guidance of $4 five to $4 75 remains unchanged and.
And our net cash capital expenditures and shipment guidance also remains unchanged.
Turning to slide 10, I'll summarize the key messages from our call today.
Financial perspective.
Q1, EPS of $1 96, Mark.
Module segment gross margin in line with our Q1 guidance.
And reiterated our 'twenty to 'twenty, one EPS guidance range of $4 five.
Operation Our second series six factory exited its ramp period, non nameplate manufacturing capacity increased to $7 nine gigawatts.
Additionally, as a result of continued execution, we're on track to achieve our target of 11% plus book produced reduction between the end of the fourth quarters of 2020.
2021.
And finally series six demand has been robust bus with four eight gigawatts for the year to date net bookings, which includes $2 90, gigawatts since the previous earnings call.
And with that we completed a fed remarks and open the call for questions operator.
At this time and I wanted to ask a question. Please press star one again that is star. One. Your first question is from Philip Shen from Roth capital.
The first one is on <unk>.
Reising I know Mark you gave some detail on.
The decrease of 11% year over year in 'twenty, two with the bookings you have but crystal and silicon pricing is up meaningfully.
Checks for.
For pricing at the 35% to 30% level at the spot.
Market.
How do you expect how is that impacting your discussions how much of that.
And you benefit from and then in terms of my second question here.
As it relates to capacity was wondering if you could provide a little more color India was on the.
Road map for a bit but with the COVID-19 problems. There I can imagine India is off the table. So what variables are you using and thinking about as you.
Consider locking in capacity expansion and a decision do you need more clarity from the body and administration for example, and I know, it's going to come on in Q2, but some additional color there would be fantastic. Thanks.
Yes.
First of all on the pricing environment clearly you've seen.
Pricing firm up.
The.
As you look across the horizon, whether it's moving around a lot of volume for the current year, but extending we had you had some available supply with current you can see from our price, but even as you look across the horizon into 'twenty, two 'twenty three and 'twenty four.
The one limiting factor that in.
Relative to the number that you referenced.
Is that.
There is in the U S. In particular the projects that people have bid are under significant pressure really from from all dimensions.
And ultimately it still will come down to an affordability, but theres going to be a number of these projects are just not going to happen.
Because when you look at the.
General cost pressures that they are seeing just commodity cost pressures right make steel going up aluminum going out.
Copper going up.
You are seeing pretty much intact.
<unk> systems labor cost under pressure as well as putting strain on all these projects and so one other things we got to be mindful of as we price across the horizon is.
Phil.
Fundamentally work within our customers' pro forma their financial staff.
To try to go out and capture.
The highest potential price point I'm not sure it's going to service the best when it comes to ensuring the viability of the project and so we've been trying to work with very.
Capable well financed counterparties and have a high certainty and quality of the execution of the projects, which inform our views around certainty of execution, which then we need to make sure that the economics around pricing work.
The other thing that I'd say that it falls into the equation is the.
Our confidence around.
Our cost reduction roadmap. So as you look to our cost reduction roadmap, we're very happy with with where we are and the opportunities that are still in front of us to drive costs down meaningfully lower than where it is right now.
The one piece of the cost structure that is not as robust.
Ability to control that we're highlighting right now.
Our sales rate, but as we're looking forward into these new contracts, we're putting variable structures in there around sales rate.
We're not very carrying net risk profile that the customer is going to share in that and to the extent that the sales rate environment stays.
So much where it is right. Now then there is a pass through that cost. So it doesn't mean, we have had historically so those are those variables all factoring in how we price and.
There is an opportunistic moment right now we look to ourself, establishing deep partnerships and relationships with our end customers customers that we now have capabilities.
To execute.
And try to create a solution that works for both for both parties right in that regard.
As it relates to the capacity expansion.
Look India.
Glenn is going through a horrible time right now.
<unk> seen cases close to 400000 about 4000.
The day, I mean, which is terrific.
But.
I Wouldnt I don't want you to think that.
Cause of that.
Okay.
We're confident that with.
India will continue to receive from international.
International.
Partners in lives like this will be a difficult challenge you'll have to get through but they will get through it and we're still evaluating India very significantly.
For the growth market for us.
When you look at the technology and the competitiveness of the technology in India.
Its ideally suited our CAD Tel technology, especially with cure of improved long term degradation rates hot humid climate mainly.
Fixed tilt structures, mainly mono facial therefore, the true value uplift, we get for mature against mono facial realizes itself and at higher Asps.
The fact that the.
Duties that have been imposed right now.
For imports mixing.
Even more critical for us to say, how do we address that market even day advance.
Are the approved list of module manufacturers and other constraints accessing in the market. So it's very important mark for Us U S as well U S. We're very well positioned to.
Got it.
Already when we expanded in Ohio, we have for adoption on our action, we purchased additional land that would accommodate a larger facility.
And.
The.
Current statements a commitment that we're seeing from the administration is positive, but unfortunately slow to act in some regards led is a little frustrating, but in general we think there is a pretty good undertone and support for.
Enabling our more capacity here and our most important market and as we highlighted in the call the benefit of sales rate for being close to market you can take a penny or so of cost out for sales strength to drive the cost down to be more competitive. So so that's all important.
The other thing I would say to make sure. It's clear Phil is that the other thing that we're doing is the next factory or factories alright.
We will be larger than anything we have today.
And they will be.
Our most advanced and competitively positioned price and in some cases, we're also going to further enhanced automation and so it's going to be.
Okay lowest cost.
A step function improvement from where we are.
Right now and so that's taken a little bit more.
Validating solidifying all of that work to get comfortable with that.
We can spend a lot of time.
I wanted to make it clear in the call that we will be making a final decision.
By the July earnings call, because I know, it's something we continue to get asked questions around.
To the extent, we make the decision to move forward and you can hit all the criteria that we highlighted then we'll make sure we make that announcement in July if we choose not to do it then we will provide the direction that we're going to move forward in lieu of that so.
But yes, we are.
A lot of good work being done right now, but we want to make sure whatever we do is that we really create again, a competitively advantaged disruptive product from where we are right now.
Is that for the deals we're booking right. Now these are deals that we have likely been in discussion with customers on them.
For many months.
And I think the phenomenon, you're seeing an outlet for silicon pricing.
Come relatively late.
Recently.
While some share many of our competitors were taking opportunities M&A volume.
Pricing was perhaps puts out some other period of time as Mark said, we look for long term relationship with customers. We chose not to do that so with how pricing. Despite what we're seeing in the market. So just wanted Mike.
Okay.
Your next question is from Michael Weinstein of Credit Suisse Securities.
Thanks for the question.
Do you have any potential plans to produce a residential product.
Given the continuous.
Efficiency improvement, so I was thinking perhaps.
The tandem junction.
Alex you mentioned.
Yes look first that product will be.
Really suited for that type of of application right. So it's going to be highest efficiency better best energy profile in there.
That would be we would target.
Segments of the market that we will pay a premium for the efficiency and residential would be.
Primary market for that and so.
As we get further along in commercializing that in scaling up that that technology is EMEA that expands.
Market segment of today, we historically have not sold into.
But there'll be other high efficiency, Mark that will look to in terms of land constrained and other challenges that you have to deal with where efficiency products would be advantageous, but residential would be one.
That's great and just a follow up on the last call. The last couple of questions you asked.
Third about Optionality and pricing.
How about tariffs how do you deal with the <unk>.
Possibility that there might be additional tariffs for Mike tour tariffs might be going away in.
In your pricing.
Going forward for 'twenty two.
Look I've kind of alluded to this for a while I mean.
We haven't really been.
<unk>.
Okay.
If the issue is tariffs.
Tariffs on a competition of tariffs on our own product and zoom.
<unk> just the tariffs the tariffs that were imposed on crystalline silicon through 201.
We.
We've been unfortunately after the first six months of the 201 being implemented the tariff went away because of the bifacial exemption, yes, and thats been reinstated I guess late last year, but most of what we got our resold really through from whatever it was June of 19 until now tariffs the 201 tariffs because of the bifacial exemption and product.
Coming in from Southeast Asia to the U S market without having to pay tariffs.
And the B.
The fact that it was then reimposed late last year, it really didn't change much for us either because most of our 2000.
'twenty one volume was already sold through at that point in time.
Yeah.
We tried it.
Continuing to manage and develop relationships and partnerships and even when the tier ones were two one sales for first impose it wasn't like we took that as an opportunity to gouge. Our customers are it doesn't service any good we are.
We're still in the early innings of this industry and the relationships that we established the trust that we create with with our partners will determine each of our success over the next decades to come so yes. They can be influential and we do believe that they are important because we also do believe that there is a need to have additional U S.
<unk> capabilities.
But it's not something we feel that we would try to to take take advantage of it.
As it relates to <unk>.
Our product.
To be a product that we import from <unk>.
Southeast Asia manufacturers somehow would be subject to tariffs and we have provisions within our contracts to try to address those types of events and circumstances, if they were to occur.
For my assumptions your question, which is really more related to tariffs relative to a crystalline silicon competitors.
And it informs the thought around pricing.
But it doesn't mean, we can we would never want to take it as an opportunity to gouge our customers.
Okay.
Next question is from J B Lowe.
Sandy.
Hey, good afternoon, guys I just wanted to circle back on on the project Economics comment that you made.
Mark.
We're seeing that kind of the same commentary.
I would like to push price to be higher given other cost issues on the polysilicon side, but but.
Theyre getting pushback from.
For the customers, who the economics are pretty soon on their on their front, so not having or not having success pushing for price increases so there's that but I'm also wondering.
Okay is there is there anything in your backlog that you think is more at risk.
But anything else just just given that.
Maybe some of the products that are in your backlog have some of those bid margins.
Wondering what you're thinking about that.
Look again.
When we price those modules they all aligned to our pro forma financials that would work for the customer right now to the extent that they have other price pressures that they're going to be seeing across their supply chain.
Cloud cost increases in things like value and potentially is that drive.
Thinner margins on their part could it could happen, but as we've said before.
Our pricing.
For our in our contracts.
Our firm obligations with security behind US, we have not seen that event happening realm.
Relative to issues that our customers are incurring or.
A discussion in that regard.
And look there as well.
We tried to do is we try to find customers that.
The value of the certainty of working with with first solar.
And also working with Counterparties that we can trust as well.
Operating against their commitments and we've been pretty successful in doing that.
Things could evolve differently, but what I would say right now is when.
When you're trying to think through a balanced relationship.
And trying to ensure certainty that certainty has to go both ways up to deliver against our commitments and our customers two to accept their commitments that they've made as well when they contracted for the modules.
Your next question is for Moses Sutton of Barclays.
Hi, Thanks for taking my question.
Of the $2 nine book 200, Gigawatts since the last call which include the recently signed sunscreens projects how much of that two nine originated from pure third party.
Mark do pipeline versus something that was originally in systems.
So.
So look for Sun streams, the Sun streams module volume and.
And when you say systems was not part of the systems sales.
Want to make sure that Thats clear right. So that was the modules I mean part of the <unk> pipeline.
<unk>.
We're really censoring for 345 was never part of the systems pipeline will three was terminated right, but most of that volume is not part of the systems pipeline, but in terms of and Alex you May note. This one in terms of the module volume that when we sold squire or how much of that.
Nine.
Okay.
About three close Big Inc.
Yes.
First vehicles are a gigawatt so the two nine.
So the 290 744 and those I know, it's not part of the actual.
Number, but I also want to make sure because you asked the question.
And the other gigawatts that we just booked today.
Denying that nine was not at all tied to the systems business. So if you look at it we've got three nine gigawatts. They were booked since the last earnings call in about 700, and some megawatts would've been tightening systems business.
Got it got it and then.
Do you think your panel weighed against the free freight costs per watt.
Same for currency six before the new initiatives than for an average or common mono PERC probably competitor we've noticed emerging claims made by some buyers.
Repeat the question one more time.
The way I got that and make sure I understand the question.
It really free cost per watt your euro panel versus an average mono PERC I know theyre all different.
Would you say that compare or are they higher freight costs typically.
Yes.
What we're seeing right now because of the larger form factors.
How we're seeing modules now that are like three square meters for alike.
Chip in them.
Vertically.
Those cost of sales rates for those products are going to be much higher than where we are right now.
So if you looked at where we would have been against the let's say the factor which was the standard before now there is variance all over the place.
We would have been slightly higher and mainly because of.
We weighed out on a container so they would actually be able to get more modules onto a container that we wouldn't have a slightly higher efficiency, but knowledge Goto bifacial glass glass larger form factor as they are creating.
Freight costs for themselves.
Okay.
Your next question is from Brian Lee with Goldman with Goldman Sachs.
Hey, guys good day.
Afternoon, Thanks for taking the questions.
I had two one on systems.
First one on kind of the core.
Cost reduction path.
First on the systems Mark you said there is sorry.
Sorry, Alex you said, there's 131.
$60 million of gross profit this year on the guide just wondering after all the divestitures here recently, how much if any there is left to be monetized in 2022.
And then if there is any Japan.
Near to medium term you kind of per for you phrased it as like a three to five year.
Opportunity just wondering if there's anything in the next one to two years there and then on the cost reduction side you mentioned.
11% reduction in Asps for the 2022 bookings at the moment.
Cost reductions have been at that level or below it seems like.
Just wondering is there a scenario in which you kind of start to accelerate that and maintain a stable gross margin on modules given your sort of starting already 11 purchasing side heading into heading into next year. Thanks guys.
Yes, so on the <unk>.
Systems side, we guided to.
130 to 160 <unk> is about $80 million recognized in Q1 zero about 16 to the mid point for the rest of the year.
Most of that comes from Japan, Youre going to see that happen in the second half of the NAV.
Look through beyond that you can think about that being a little bit of Japan.
Potentially more further out, but you're going to see Japan come in over the next three to five years, you will see an impact every day out of them.
On the cost side, our cost per watt I think we talked about an 11% cost per watt reduction on a produced basis for the year. So we see a production number that's matching what we see in terms of decline on ASP and obviously, that's on a percentage basis guidance on lower number youre going to have a little bit of a gross margin squeeze if you have to.
Same for sudden reduction from an ISP and our cost per watt side.
The other thing to bear in mind, Mark might want to talk a little more on the cost, but I'll just say on the Opex side.
We talked a lot about gross margin I think it's important that we match that gross margin will continue to beat it but one of the benefits of scale and one of the things we're talking about an expansion in looking at manufacturing capacity is the ability to leverage against our fixed cost base as well. So we touching number in terms of cost reduction relative to the.
The revenue decrease is off we can actually see a benefit coming through on the operating cost side I know you've done a pretty good job. There I think if you look back over the last decade, or so bringing that status for what number down from and.
<unk> also 10 years ago, maybe over <unk> five years ago.
This year, if you look at it going to be somewhere around three and a half since the bottom.
As we go forward given that operating cost structure is largely fixed.
Understand thanks, you can see as we grow capacity, that's going to come down and so you can get EBITDA, maintaining operating margins or expansion at the operating margin level. So no.
There's a lot of work still to do at the gross margin level, but I just want to make sure that comments not missed we've looked at also for that the operating margin level, Yes, I think the.
The other thing I'll say, Brian is that there's a lot of things that are in the mix now that will help continue to drive down.
The cost per watt.
Primarily this year as you got to remember, we're taking a little bit of a headwind per.
And a number of upgrades right for pure in particular.
Costing us about a half penny or water so that for the year for now going into next year, we don't have as significant.
Upgrades and he says the currently envision relative to the technology roadmap that we need to roll out they would have as significant of a headwind given the downtime we had to take for this year. So.
So that helps normalize itself we also have.
The efficiency continues to improve from this point through the end and we have an exit of ground.
For 65 Watt and then we'll exit 2022, I think it's a 480 water or something like that is what we previously indicated so so that helps drive but then we've got a number of other bill of material initiatives that will drive improvement in one of them is just even out over the last cost because theres different tiered pricing as we drive more volume.
Across our contracts for glass, we hit different tiers would actually drive down price. It before when you look at the throughput is lever where theres more throughput to go.
As more efficiency benefit and.
And then we have the locks for the improvement that will make it.
And we don't have as much planned downtime at least as currently envisioned so those will all help us manage across that horizon.
For 2022.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
Okay.
Okay.
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Right.
Thank you.
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