Q1 2023 First Solar Inc Earnings Call
Secured a manufacturing incentive award in India.
Our technology roadmap with our new cell efficiency record.
We continued our strong bookings and ASB momentum.
It is important to emphasize that our points of differentiation from our unique <unk> technology and vertically integrated manufacturing processes.
Our commitment to responsible solar.
Continued to assert first solar apart from the competition.
In our other proprietary enablers of our long term competitiveness.
Beginning on slide three I will share some key highlights from the first quarter.
This quarter, we strategically built on our backlog with $4 eight gigawatts of net bookings since our last earnings call at an average ASP of 31 eight cents per watt.
The <unk> and adjusters where applicable.
This brings our year to date net bookings to $12 one gigawatt.
At the same time, our total pipeline for future bookings opportunities has grown to 113 Gigawatts and includes 73 gigawatts of mid to late stage opportunities.
From a series six manufacturing perspective, we produced 236 gigawatts of product in the first quarter.
With an average watts per module of $4 67.
A top in class a 475 watts.
In manufacturing yield of 98%.
This solid performance is a result of our relentless focus on manufacturing excellence.
Regarding series seven.
The ramp at our Florida, Ohio facility, which began production in January is progressing well.
We produced 170 megawatts in the quarter and recently, both demonstrated high volume manufacturing production capability of up to 10000 modules per day, which is approximately 60% of nameplate throughput.
And achieved a production top end 535 watts.
Developed in close collaboration with Epc's structured and component providers.
37 reflects first soldiers ethos of competitive differentiation.
And entirely produced under one growth.
This design is expected to deliver improved efficiency.
And unmatched lifetime energy performance for utility scale projects.
We are tracking to begin customer shipments as early as June of 2023.
And towards that goal. We are pleased to have recently received 37, IEC and UL product certifications.
From a technology perspective in Q1, we certified a new world record CAD Tel cell with a conversion efficiency of 22, 3%.
Most importantly, this was achieved in our pure technology platform.
Which provides a significantly improved energy profile.
In addition, we recently received an award from the U S Department of energy related to our tandem module development.
Moving to slide four we are pleased with construction progress at our manufacturing and R&D facilities expansions.
In India.
At our new series seven factory in Chennai final building and facility works are nearly complete.
And the factory has been energized too.
Tool installation is ongoing and we received our first consent to operate.
To begin production and ramping activities during the second quarter second half accused me of 2023.
Once fully ramped this facility is expected to add 354 gigawatts of annual nameplate manufacturing capacity to the fleet.
As soon as we see announced India facility has also been allocated financial incentives under the Indian government's production linked incentive program.
First solar was one of only three manufacturers selected to receive the full range of incentives.
Our reserve for fully vertically integrated manufacturing.
The incentives are subject to the facilities meeting product efficiency and domestic value creation thresholds.
Which we will evaluate on a quarterly basis beginning in the second quarter of 2026 through 2031.
In Ohio, our project to upgrade and expand the annual throughput.
Of our series six factories by an aggregate of seven Gigawatts is also advancing.
Tools have been ordered and the additional capacity is expected to come online in 2024.
And Alabama, our fourth U S factory has received its environmental permits.
And foundation that early factory construction is underway.
Tools have been ordered and the facility remains on schedule for completion by the end of 2024.
With commercial operations ramping through 2025.
When fully operational.
These expansions in Ohio, and Alabama are expected to increase our annual nameplate capacity in the U S to over 10 Gigawatts by 2025.
Our dedicated R&D facility.
Also commenced construction and will feature a high tech pilot manufacturing line, allowing for the production of full sized full sized prototypes of.
Thin film in tandem PV modules.
And we will provide a means to optimize our technology roadmap with significantly less disruption to our commercial manufacturing lines.
This facility is expected to commence operations in 2024.
Looking forward, we continue to evaluate the opportunity for further investments in expanding our production capabilities to best serve our key markets.
Moving to slide five.
I'd first like to draw your attention to a change in the way we present our contract backlog.
In the past, we have shown expected module shipments.
Going forward, we will show expected module bonds sold.
Which takes into account the timing of revenue recognition.
And aligns with volumes sold in contracts with customers for future sales disclosures represented in the 10-K and 10-Q quarterly filings.
As of December 31, 2020 to our.
Our contracted backlog totaled $61 four gigawatts.
With an aggregate value of $17 7 billion.
Through March 31, 2023, we.
We entered into an additional nine nine gigawatts of contracts and.
And recognized $1 nine gigawatts of volumes sold.
Resulting in a total backlog of $69 four gigawatts with an aggregate value sold of 24 billion.
Which implies approximately $29 three per watt.
An increase of approximately half a penny per watt from the end of the prior quarter.
Since the end of the first quarter, we have entered into an additional two two gigawatts of contracts.
Bringing our total year to date backlog to a record 71 six gigawatts.
During the first quarter certain amendments to existing contract associated with commitments to provide U S manufactured product as well as commitments to supply domestically produced series seven modules in place of series six.
Increased our contracted revenue backlog by $35 million across eight eight gigawatts.
Approximately four.
Four five per watt.
Since the second quarter of 2022 and up to the end of Q1 2023 cumulative amendments to existing contracts associated with commitments to provide U S manufactured product as well as commitments to supply series seven vs series six modules increased our contracted revenue backlog by one.
<unk> hundred $57 million across four one gigawatts or approximately three nine per watt.
No. We are currently processing additional amendments associated with Horizon U S manufactured product.
As reflected in our Q2 contracted revenue backlog with reported.
As we previously addressed a substantial portion of our overall backlog includes the opportunity to increase the base asps through application of Adjustors.
If we're able to realize achievements within our technology roadmap.
As of the required timing for delivery of the product.
As of the end of the first quarter, we had approximately 34 five gigawatts of contracted volume with these adjusters, which if fully utilized are realized.
Good results in additional revenue of up to approximately <unk> 7 billion or approximately two cents per watt from.
A majority of which will be recognized between 2025 and 2027.
As previously discussed.
Does not include potential adjustments for the ultimate ultimate been delivered to the customer, which may adjust ASC under the sales contract upward or downwards.
In addition, this amount also does not include potential adjustments for increases in sales rate or applicable aluminum or steel commodity price changes.
Finally, this does not include potential price adjustment associated with the ITC domestic content provision under the recently enacted.
And reduction Act.
As a reminder, not all contracts include every adjuster described here.
<unk> assessed adjusters are not included in our contracts, we believe the baseline ASP reflects an appropriate risk reward profile.
While there can be no assurance that we will realize adjusters and those contracts when they are presented to the extent that we're successful in doing so.
We could expect a meaningful benefit to our current contracted backlog ASP.
Year to date contracted backlog extends into 2029.
And excluding India, we are now sold out through 2026.
Regarding future deliveries as a reminder, our contracts are structured as firm purchase commitments.
In limited circumstances, often related to customer and regulatory requirements for a portion of a large multiyear framework commitments or contracts may include a termination for convenience provision with.
Which generally require substantial advance notice to invoke.
And features a contractually required termination payment to us.
This fee is generally set at a substantial percentage of the contract value.
And the best and Backstopped by some form of security.
Termination for convenience provisions apply to approximately 110th of our entire contracted backlog.
With the majority of the applicable megawatts scheduled for deliveries between 2024 and 2025.
Should the customer failed to perform under our contract.
The ensuing default would.
In addition to their concurring potential dispute resolution and project financing complications entitle us to remedies that could include the receipt of the termination of the would include received a termination payment.
That said, we and our customers, including many of the largest most respected developers and utilities in the industry.
<unk> taken a relationship based versus transactional approach to contract.
As a result this year alone we have booked multi gigawatt deals with peak customers, including Edp renewables.
<unk> VP.
And Leeward renewable energy.
We signed a two year two gigawatt order announced prior to the call.
Further expanding our longstanding relationship with us.
Using the contract with first solar our customers value and prioritize significantly more than just the module ASP.
Including contracts integrity.
Availability uncertainty.
Ethical and transparent supply chain.
But first of all of this approach provides the opportunity to partner with customers who share our values and also provides greater uptake visibility, which helps support our long term capacity expansion plans.
There is alignment of interest which has been validated in the pass through multiple pricing and supply demand cycles in this industry.
Arms and guys are commercial strategy of continuing to enter into long term multiyear contracts.
As reflected in slide six.
Our pipeline of potential bookings remained robust.
With total bookings opportunities.
$112 seven Gigawatts and.
And an increase of approximately 20 gigawatts since our previous call.
Our mid to late stage opportunity.
Increased by approximately 15 Gigawatts to 72 six gigawatts.
That includes.
65, six Gigawatts in North America, four Gigawatts in India.
Two seven gigawatts of EU.
And 0.3 gigawatts across all of the geographies.
Included within our mid to late stage pipelines, our four seven gigawatts of opportunities that are contracts subject to conditions precedent.
This include $1 nine Gigawatts in India.
As a reminder, signed contracts in India will now be recognized as bookings until we have received full security against the Austin.
Turning to slide seven our research and development efforts have continued to be the driving force in the advancement of our technology.
In Q1, we established a new world record research conversion efficiency for Cantel, achieving 22, 3% efficiency as certified by the United States Department of Energy's National Renewable Energy Laboratory.
The record setting research cell was constructed at our California Technology Center.
Notably.
This new record is based on our <unk> technology.
Which in addition to an increase in efficiency.
As meaningful a lifetime energy improvements in real world conditions.
Bye bye superior temperature coefficient.
In class sales stability.
While maintaining first solar industry, leading quality and reliability.
<unk> technology provides for an up two 6% increase in expected lifetime energy relative to our previous record cell technology.
Additionally, the U S Department of energy recently provided two grants associated with our industry leading points of differentiation efforts.
These include a $7 3 million award to first solar to support the development of a cat tell tandem module for the residential rooftop segment.
A $1 $3 million award to the University of Kansas, which is collaborating with first solar and the Idaho National Laboratory.
Develop a low cost next generation method to optimize solar module recycling.
Before I turn the call over to Alex I'd like to take a moment to discuss the policy environment in our key markets.
In the United States with respect to the inflation reduction Act.
We continue to await guidance related to the domestic content bonus provision.
We believe it is an imperative.
That the United States Treasury Department issued guidance consistent with congestion congressional intent of the IRA.
Which is to nurture true domestic solar manufacturing, ensuring a robust domestic supply chain for American made solar modules.
It is critical the guidance recognize that to qualify for the bonus at a minimum the manufacturing of solar cells must occur in the United States.
This is not only consistent with the clear objective of the IRA but it is also supported by the legal framework under the buy American Act.
Regulations expressly referenced by Congress and the enact them.
While the attended the IRA and the regulations governance and our clear it is unfortunate that sections of the industry are advocating that treasury grant some form of waiver that would allow bonus credits. They are solar panels are assembled using foreign sub components such as solar cells.
We believe that any such waiver runs contrary to the letter of the law and congressional intent.
The purpose of the bonus credit is to incentivize domestic manufacturing and the creation of a domestic solar supply chain.
Not to create an entitlement simply to support foreign manufacturers.
With regards to international policy, we are seeing some progress in the EU, which has released its new state aid guidelines in the form of the temporary prices and transitioned framework.
And a draft this net zero law.
The state aid guidelines create the framework for allowing EU member states under certain conditions.
Match eight received by clean energy technology manufacturers elsewhere.
Including under the IRS.
The net zero law, which established new ambitions, Jimmy regional needs with domestically produced content.
Prioritize net zero projects and technologies and address existing issues such as permitted.
As previously mentioned policy among other considerations continues to influence our evaluation of potential additional manufacturing expansion.
So that's expansions would require further clarity.
<unk> in the U S satisfactory treasury guidance with respect to domestic content.
And in Europe further clarity on EU member states incentives for domestic manufacturing.
I'll now turn the call over to Alex who will discuss our Q1 results.
Okay.
Thanks Mark.
On slide eight I will cover our financial results for the first quarter.
Net sales in the first quarter were $548 million, a decrease of $464 million compared to the fourth quarter.
Decrease in net sales, primarily driven by an expected shift in the timing of module sales as we increased shipments to our distribution centers.
To mitigate logistics costs as well as to align future shipments to customers the contractual delivery schedules.
Along with the completion of the sale of loose automotive project with the cycles.
These decreases were partially offset by an expected increase in module asps and sudden announce on legacy systems projects.
Gross margin was 20% in the first quarter compared to the same.
Okay.
This increase was primarily driven by expected benefits from inflation reduction act to $70 million and lower sales rate, partially offset by $19 million of ramp costs unused 70 satisfactory at island.
Although logistics costs decreased during the quarter. They continue to remain elevated relative to pre pandemic levels.
During the first quarter that reduced gross margin by 15 percentage points.
As it relates to the second half of the year, we expect to see a reduction in logistics costs Ratcliffe.
As further described in our 10-Q that most recent 10-K inflation reduction act of the certain tax benefits of solar modules solar module components manufactured in the United States consultants that policies.
Well as of component the benefit equal to $12 per square meter for PD wafer.
All cents per watt for PV cell and <unk> bought for PV module.
Based on current form factor of our modules, we expect to qualify for a benefit of approximately 17 cents per watt throughout each module salt.
Recognizing these benefits and a reduction to cost of sales in the period. The modules are sold to customers.
In the first quarter of 158 megawatts of the U S. Produced volumes sold was produced in 2022 and were not eligible for any of these benefits.
SG&A and R&D expenses totaled $75 million in the first quarter, an increase of approximately $1 million compared to the fourth quarter of 2022.
Perhaps inside of expense, which is included in operating expenses was $19 million in the first quarter decreased approximately $13 million compared to the fourth quarter driven by the start of the qualification process on new series seven factory in Ohio.
Our first quarter operating income was $18 million, which included depreciation and amortization or accretion of $69 million production started expense of $19 million and share based compensation expense.
Yes.
With regard to other income and expense our first quarter interest income increased by $8 million due to higher interest rates and cash and time deposits.
As a reminder, other income in the fourth quarter because of the gain of $30 million in connection with the sale of our move to a multi project.
Lenders accretive again, a portion of the outstanding loan balance was part of that transaction.
We recorded a tax benefit of $7 million in the first quarter tax expense of $1 million in the prior quarter.
The increase in tax expenses, driven by excess tax benefits associated with share based compensation awards that vested during the period, partially offset by higher pretax income.
Combination of the aforementioned items, but first quarter diluted earnings per share of <unk> 40.
Compared to a fourth quarter net loss per share.
Next on slide nine to discuss select balance sheet items and summary cash flow information.
Our cash cash equivalents restricted cash restricted cash equivalents marketable securities ended the quarter at $2 3 billion.
$2 6 billion at the end of the prior quarter.
The decrease was primarily driven by capital expenditures associated with our new plants in Ohio, Alabama in India.
Payments through operating expenses, partially offset by a drawdown in the credit facility.
<unk> payments received each of module sales.
So related to advance payments substantially all our contracts and our backlog at the time of booking we typically acquire payment securities in the form of cash deposits bank guarantees shortly bonds letters of credit.
Following up to 20% of the contract value.
During 2022, as we started contracts and further into the future, we generally start requiring a higher percentage of cash deposits.
Reflects lot consolidated balance sheet of deferred revenue.
These deposits totaled approximately $1 3 billion as of quarter end and.
And are providing a significant portion of the financial resources required.
Our existing expansion effort.
Total debt at the end of the first quarter was $320 million, an increase of $136 million from the fourth quarter. As a result of the loan drawdown under our credit facility related to the development and construction of a manufacturing facility in India.
Our net cash position decreased by approximately $1 4 billion $2 billion.
The result of the aforementioned factors.
Cash flows used in operations with $35 million in the first quarter capital expenditures were $371 million.
Right.
Given recent uncertainty the banking sector I would like to note that our investment policy and approach to managing liquidity focused on preservation of investment principal and the media availability of adequate liquidity.
Slowed by return on capital.
As soon as this policy, we place our investments on a group of high quality financial institutions.
Focus on counterparty credit credit worthiness and diversification.
We do not have cash invested in regional Super regional banks and in the quarter, we increased our holdings of U S Tiger.
In addition, we continue to evaluate putting in place the revolving credit facility.
Both jurisdictional cash management as well as provide short term optionality.
On slide nine our full year guidance unchanged from our previous earnings guidance call in late February .
Plus reiterate that from an earnings cadence perspective, as previously noted on our February earnings guidance call.
Our earnings profile will be higher in the second half of the year.
These are contractual delivery schedules.
First sales of our 37 products.
And the timing of recognition of section 45 expenses driven by both the timing of volume sold as well as the inventory lag.
Product sales in the early part of 2023 may have been manufactured in 'twenty two.
For series six.
Following on from the sale of 158 megawatts in Q1 that was not eligible for resection buybacks tax benefit of.
We have approximately 50 megawatts of U S manufactured product remaining in inventory that is not eligible for resection buybacks substantially all of which is expected to be sold in the second quarter.
Without specific seven we expect to begin shipping products from our third Perrysburg factory in June .
Expect both revenue and section qualified X benefit recognition in the second half of the year.
From a volume perspective, we expect first half volumes sold.
One nine gigawatts to sales in Q1.
Total $4 three to four five gigawatts.
Buying second half volume sold of between seven three and eight gigawatt.
From the section 40 about ex perspective based on the aforementioned factors, we expect to recognize approximately 25% of our full year guidance in the first half of the year approximately 75% in the second half.
So as it relates to our longer term outlook beyond 2073, we plan to hold an analyst day in Ohio campus on September seven 2023, which will include a live broadcast.
So on slide 10, I'll summarize the key messages from today's call.
Demand continues to be robust with $12, one gigawatts of net bookings year to date, including four eight gigawatts of net bookings since our last earnings call.
The average ASP of 31, 8%.
So a record contracted backlog of 71 six gigawatts.
Our continued focus on manufacturing technology excellence resulted in a record quarterly production of two one gigawatts.
India higher outbound expansions remain on schedule.
We also achieved a record cash held for both an efficiency of 22, 3% based on our core technology platform.
But actually with <unk> 40 per share we ended the quarter with a gross cash balance of $2 3 billion or 2 billion net of debt.
We are maintaining our <unk> guidance and sold including polyethylene Mr Chair of seven to $8.
With that we completed our planned remarks and a good quick questions alright.
Thank you Sir just a reminder that is star one for a question we will go to Philip Shen Roth and colon.
Hey, guys. Thanks for taking my questions.
Last quarter, you talked about how bookings might decelerates or we saw some of that this quarter.
But the Asps for the bookings were in line if.
If not higher.
There were higher versus last quarter, how do you expect bookings to trend in Q2, we have some of that data now but for the rest of the quarter Q3, and Q4 and then how do you expect the bookings ASP.
Also the trend and now that Youre sold out through 2006, when do you expect to sell a 27.
Yes.
Yes.
I think from 26% and 27 I think we're something approaching.
Those two are approaching close to 40% of that.
In spite plan.
Being sold right now, obviously, a little bit more of that it is in 2728, but I think we'll make good progress on both of those years.
I don't really want to commit to a specific date of when we would sell at 27, because we will do 27. The same way that we did with 26 of customers, who want 27 volume look I don't want to tie that into multiple years. So we're going to leverage that want to leverage that as best we can across the balance of that guidance. So I don't think thats important I'll quickly sold out, but it's how we use that 2000.
Kevin.
Volume strategically to just create more multiyear agreements on visibility as we go through the balance of the decade.
As it relates to bookings, yes, I mean look we had 60 days basically since the last earnings call and so you would expect just from that reason alone is going to trend down.
But the underlying demand which is reflected in our.
Total pipeline as well as our mid to late stage pipeline as we indicated in our prepared remarks and has continued to grow. So that's extremely encouraging we have a number of very large deals with strategic.
Counterparties.
That we're still working through it.
We were successful in closing one or two of those in the second quarter, we could see a very strong result for the second quarter, plus we can cause more than.
A handful of those include analysis of the balance of the year I can continue to see bookings carrying forward into Q3 into Q4 being reasonably strong.
But as you indicated.
We are longer dated than some of those commitments are and we'll see how it <unk>.
Lays out.
Why is I mean, the great thing about having such a strong position where we are right now is we can be patient.
And both deals that makes sense.
R R.
Counterparties that we've had.
Ongoing conversations with them, where we just can't get to a point that is.
Agreeable on price to their expectation relative to where our expectation is that there is a gap and so we'll continue to see if we can close those gaps, but if not there is enough opportunity with other partners out there.
But we think we can continue to get.
Asp's.
Having said that I want to make sure equivalent.
We do book, the India volume and we've indicated before that India volume will have a lower ASP.
But still a very attractive.
Gross margin on a cents per watt basis as well as on.
Percentage basis, plus now.
We also have the opportunity for the production linked incentive which will carry forward into and making those opportunities more accretive if we were able to realize that benefit so.
ASP trends will continue.
Work through them in a very patient matter for the U S.
Pretty optimistic with where we are right now and we will continue to see how the balance of the year plays out and also as we indicated where there's more opportunity to.
Look to capture technology address we also have the opportunity to capture the domestic content series seven uplifts that are already embedded in our contracts and I think the team did a great job.
First quarter here to realize another $25 million of ASP uplift because of that and as I indicated we have a number of other deals we're working through right now I'll close with two and then be captured and reported in our next quarter Bob.
Okay.
And next we'll take a question from coffee Harrison Piper Sandler.
Good afternoon, and thanks for taking the question.
My question surrounds your capital allocation strategy. So if we look over the next 10 years or so it looks like you are positioned to generate call. It north of $10 billion from the manufacturing credit Suisse space of what you've announced so far it seems like it would be pretty pretty questionable political move to use that cash to return capital to shareholders and there's only so much money you can.
Spend on R&D, each year, and so mark Alex when you look at the business over the next decade, assuming treasury guidance comes in line with your expectation.
Is it a safe assumption that youre going to use that cash to expand manufacturing capacity and if not what are you going to do with all that cash.
Okay.
So look I think the near term.
It's not going to be a problem for us up in a couple of years. If you look where we are right now we started this year with <unk>.
6 billion grows to four net are planning to end the year forecast basis.
About 135, I think at the midpoint.
Sit down $1 billion or so.
At time of about $2 billion of Capex in the guide so operating cash flow you'll see strong.
I look forward beyond that clearly.
We've given a view of how we think about cash in the Australia and you start working capital around the business.
That has come down a little bit since we exited systems business, but at the same time as we grow the module business you do have increasing working capital we.
We talked about product expansion is clearly where we'd like to use the money most and thats. The best use of our cash the highest ROIC at the mountain.
The project systems business has it gone basically there is potentially some use around M&A, we've talked in the past M&A used to be focused around developing business in acquiring platforms projects more likely to be used now on the development side.
R&D side manufacturing side.
If we get through all of that and we can't find uses for capital accretive and makes sense. We would look to return I think given the cycle that we're in right now we're going to have significant opportunities to deploy capital to increase manufacturing of <unk>.
I would say is that as we.
We think through needs going forward, you've talked a little bit about some of the constraints in the supply chain in the near term.
As youre seeing more announcements in the U S and as we continue to grow that may be constraints that we either can choose still needs to help mitigate in the supply chain, which may necessitate some capital investment across the areas that are adjacent to our module manufacturing directly.
There's other areas, where we may look to potentially have to deploy capital in the short term.
Next we'll hear from Mike Mandela credit.
Hey, good evening, thanks for taking our questions, but maybe just on the India appear like could you just talk about.
How do you think about from an accounting point of view.
Similar to the U S credits.
Any thoughts of expansion there.
Secondly, just on the cadence on sold versus produced should we expect a similar cadence between the two as we saw last year through the quarters. This year. Thanks.
Yeah. So I think on the fee alignment to look because we havent accounting work it's a.
Return of capital.
24% I believe against the facility cost that can take place.
We'll update you on the accounting as we went through that.
I'll, let mark talk about the expansion.
Look through where we are in terms of.
On your question on production versus solid volume.
It's something that.
And confusion around some of the analysts report essentially around timing.
From a production perspective, we will be growing production across the year, but it's not significantly back ended in 2023, however from a sold.
It is fairly back end.
We guided to a midpoint of around 12 Gigawatts of solid volume. This year, we sold one nine in Q1.
<unk> just now we set that guidance.
Guiding to a first half of $4 three to four five so the midpoint of $4 four for the first half of the year and that leads you to two five gigawatts in the second quarter and then <unk>.
Second half number of about seven six so you can see that from a total volume of roughly a third to SUNS weighted first half the second half of the year do you think about why that is a function partly of timing of customer demand.
Customers are requiring shipments and it's also a function of the R series seven production beginning in Q1 and continuing through Q2, but will not be getting the ship that product until the back end of Q2, and so you're not going to see the timing of revenue recognition for that come until Q3 Q4. So that's part of what's causing that multi mountain.
And then of course, you see a similar dynamic in terms of the inflation reduction Act recognition. If you look at how that plays out we said on the call you're going to see something like <unk>.
Quarter of the total revenue recognition from that benefit.
Around the place reduction expected pointed out that's happening in the first offer yet the remainder in the back half of the year and that's again a function of.
Timing of U S sales from our series six the fact that you've got some inventory lag carryover of series six being sold that was.
Produced in 2022 and that doesn't have credit and you have seen most of that in <unk>.
Second quarter about 158 megawatts in Q1 of <unk> 50 in Q2, and then the series 700 camera producing top vehicle, we're not selling that product Bill Sanger.
Obviously, you can see the credit tightening in the second half year as well.
As it relates to the expansion in India in India.
Obviously, a very important market for us and one that we're continuing to look to grow I think there is a sustainable demand profile there.
And if you look at their load expectation of low growth to now and the end of this decade, it could be upwards of 60% increase in <unk>.
They are the lowest cost form of new generation to help serve that load growth is going to be renewable solar oxy being the primary one.
A lot of growth opportunity.
Streamlining.
Our technology extremely well positioned.
India, So India is a very attractive market as we scale up that factory will continue to assess opportunities for additional investments to further capacity expansion in India.
But I would expect us.
Thanks progress as we currently envision between now and.
In this decade.
More than look back there in India.
And next we'll take a question from Brian Lee Goldman Sachs.
Hey, guys. Good afternoon, thanks for taking my questions.
Just kind of going back to Phil's question around.
Bookings ASP trends you had.
With 38 cents per watt, if I recall correctly last.
Reported bookings from a quarter ago, and then it was 31 eight.
Oh.
Quarter on quarter, I know, there's a lot of moving pieces, but can you give us a bit of.
Color around kind of how are you.
Add a penny per watt increase from quarter to quarter on bookings.
Series seven more modules.
You mentioned, mark the moving pieces around India potentially.
We're bringing that number down over time, but just wondering if you could give us some of the moving pieces as to.
How to think about price trends going forward given it seems like there's still some leverage youre able to pull to get that number higher given the given the results here.
Follow up on capacity expansion.
Right.
You guys have been patient on that front, but any updated thoughts on <unk>.
Timing and what maybe some of the gating factors are we are announcing more capacity given clearly the demand.
<unk> continues to be in your favor and now Youre almost sold out through 2007, thanks guys.
Yes, as it relates to that.
The bookings and kind of flip to the ASP.
Sequentially.
Actually there is a pretty pretty good mix it when I look across.
Yes.
Call It five gigawatts.
Largely for deals that made up most of that back to I think we announced one was a.
<unk> and.
And the other was.
Leeward and one of the things just to be clear on that on the LIBOR does that.
You also notice that we also have contracts subject to CP bucket in our disclosure that gets about.
Four points on our side gave us $4, seven or something like that of which $1 nine of that is NGL not all of that volume from LIBOR was actually accounted or booking because there is a provision in there that could flex it up reflects about it what we've done is we've taken our percentage of that volume and that's reflected in the contract subject to CCAR.
Eight.
But I just want to make sure that's clear.
Not all of the two Gigawatts is actually in the bookings the four day because a portion of it is that the contracts subject to CD bucket and again, it can flex up or flex down.
But when I look at those bookings.
It's a good mix of international.
And domestic it's a good mix of series six.
U S and international it's a good mix of series six and series seven.
So it's not skewed towards one or the other.
We'll say that clearly.
The Asps that are represented in there for those different variants.
It will be different.
So.
<unk> said this before the.
International.
Volume is generally going to be lower than domestic volume.
Its extent, we're selling into the U S market.
Of the.
Yes, the best content value equation.
Equation of the domestic ITC bonus.
Theres also some amount of that volume that went into Europe , which was at a lower asps. So when I look at it as relatively diversified there is diversity of product diversity of geography.
The blended spill to a very strong.
For the quarter and we're obviously very happy with that now.
So lower volume than we've done in the last quarter in general when you see much.
Higher volumes and larger aggregate purchasing power and multiple year agreement you may see asps.
More aggressively into that situation, so I wouldn't I wouldn't attribute the increase.
Any one lever, but what I would say is we're still very happy with the market and the opportunity in ESP that we will receive it.
As it relates to capacity expansion.
Look the.
As we said the primary gating factor eyeglass clarity on policy.
I said it in my prepared remarks, if we if the domestic content stays true to the congressional intent of IRI and it's truly requires a highly manufacturable component here in the U S. In order to qualify and a bonus being truly a bonus and not trying to create some form of entitlement.
Which we believe that we should include at least the cell it's not beyond the sale as part of the domestic content requirements to be manufactured here in the U S.
That's going to be a key determining factor in terms of new capacity.
I've said before that.
There's some reason that that is not the decision if its module Assembly. Only then we've got to reassess in terms of how do we engage with best serving our primary market here in the U S.
May not necessarily be.
<unk>.
A new factor it could potentially be a finishing line here in the U S. Because that's what.
The interpretation is by Treasury.
And the White house, if thats, what they want they want module assembly. They don't want module manufacturing. If that's their decision then we will have to assess that from our own perspective and determine what investments we make.
But for me, that's first and foremost has to start off with with policy and I'd be very disappointed if that's the direction that they win I think we have a unique opportunity with airasia or to create an enduring supply chain allows sore cycles of innovations here in the U S allows the U S to be a technology leader.
With solar and other renewable energy.
And let's hope that as where the outcome is.
If they choose to go a different direction and not being strategic and long term in their thought process.
And the cost structure, then we'll have to evaluate that ourselves and determine what's the right deployment of capital.
Our next question is Julien Dumoulin Smith Bank of America.
Hey, good afternoon. Thank you guys for the time I appreciate it.
Moving back to this.
Comments in the prepared remarks were the termination for convenience I just wanted to follow up I think you guys said 110th of your entire contracted backlog has that with the majority being 'twenty four 'twenty five can you comment a little bit about what kind of provisions or entitlements are provided for contracts beyond 2025 at present any kind of other nuances or other provisions beyond just <unk>.
<unk>.
What we said is generally our contracts.
Fixed price contracts.
So generally thats, how that structure going out now, but we wanted to highlight the termination for convenience I think thats been.
Please around how strong these contract thoughts that we wanted to make sure it's clear that.
Only a 10th of a backlog today of roughly 70 Gigawatts Taz.
Termination of convenience provisions.
And the majority of those fall into 2024 to 2025 timeframe.
If you look at where module supply isn't that time, maybe think about timing for which people design plants can finance clogs. We think is relatively low risk does get invoked.
But what I was trying to give you that color as to what was out there as you go out to further data contracts. They are they have always been which is.
Fixed price contracts with the adjustments that we talked about so upside downside around 10 clubs.
Adjusted around things like aluminum and steel pricing some sales freight adjusted the channel debuted as protection officers of risks that we see property mitigated by the customer places us and I think we also said is that in some cases these are regulatory kind of.
Requirements that we have to contract around.
These provisions have been in our contracts and again on a relatively small percentage of our contracts historically, we have not seen customers adopt these provisions.
To the extent they are in a contract.
The other thing I would say that some of these very same contracts that have these divisions were also out there negotiating with customers on domestic content up.
Lift on ESP.
And when those uplifts do happen Theres additional security that has to be posted which further in my mind solidifies the commitment from the customer.
Also.
Yeah.
Most of our customers.
This is a true partnership with first solar and they know that if they were to invoke something like that they would be making a decision to no longer be willing to partner with first solar.
Don't think there is many of our customers today, they really wanted that vulnerable given the uncertainty.
It could happen at any point in time right between geopolitical issues and challenges between the U S and China and other implications that could happen that could have an adverse impact on supply chain in the U S.
It's going to be a while before you get a fully vertically integrated U S supply chain that would include poly through module Assembly.
Our customers understand Thats, our first solar brings to the equation and they bring certainty and integrity.
I think that will keep most of our partners committed to the long term relationships are not looking at the transactional opportunities.
And Kelly from Baird has our next question.
Hey, guys, maybe following on to that first question.
Capacity.
Mark.
How do you think about it.
Overcapacity is good.
Bigger warmer.
We reported in the Wall Street.
Before.
Now lets groups.
My second question is about.
Carbon intensity.
Technology.
How that benefits you.
You.
Specifically I think I read that.
Yes.
Creating hydrogen hydrogen will require to get those credits will require.
<unk>.
So maybe there's a differentiation there.
Yes.
Thank you.
When you look at the global capacity in the trajectory of <unk>.
<unk> supply.
I think it was.
What that oversupply is relative to ultimately finance.
<unk> I think there's all different views around that in terms of how much.
If we could see on a global basis with the rest of the end of this decade and I do think there are some drivers around demand that they are fully appreciate such as green hydrogen.
But I think you have to then.
Decouple that and say where is that.
What market is that going to be easily used to address like for example.
India when you look at India.
And.
The.
Trade and industrial policies that have been put in place in India, largely say, it's going to be a domestic market for me to try to engage and support India on an import basis and to pay the tariffs and assuming you can even get to a point, where you have that are approved to actually.
Sell it to India to the approved list of module manufacturers. That's another hurdle interest strength that has to be addressed so the best way to serve that market is going to be domestically. So when I look at India and say whatever.
Alright, silicon capacity is being added assuming it's not happening in India, It's really irrelevant in terms of the India market.
You have a similar dynamic here in the U S as well.
<unk>.
The poly Silicon I mean, I understand that there is clearly wafer capacity that's being added in southeast Asia.
And the.
Cell capacity and to the extent they can get polysilicon supply chain that can enable that capacity, which generally are going to be non Chinese source, probably hemlock, probably walk or somebody like that which also know that there are enough <unk>.
Vantage situation as it relates to pricing on colleagues and we're making sure that they hold it firm.
So I think there are some additional challenges that ultimately will have to be addressed for that capacity expansion and in general when you look at the capacity expansion, where most of the increases happening thats not happening in countries like Southeast Asia and China.
As you received must be announcements about policy look at it our wafer capacity expansions and the like so so you got to break that up to determine what's really a supply chain that can address the U S market.
And.
And look we know that there'll be incremental capacity, but theres going to be strong demand here in the U S market.
And our customers understand that as well.
I'll go back to the discussion on hydrogen when you think about the key enabler of hydrogen as an example, you can do anything until it I'll just use solar as the example, green hydrogen is going to require some renewable source lets say at solar until you take bolt ons to make electrons you have nothing and so when you look at the.
The solar Capex relative to the total capex of hydrogen and will Electrolyzed yours, and everything else, it's relatively small and when you get into the nuances of handful of pennies one way or the other a lot of these guys that are going to develop these projects, which are multiyear projects.
Net are only enabled by <unk>.
Solar modules.
They don't want to take the risk and so that element of uncertainty sort of flip.
Put them in a position of less contract list, let's make sure we can.
Get.
Contract with trusted.
Credible counterparty.
And derisked their projects and so we're seeing a lot of that in terms of the conversations that we're having we're also doing a lot more business with.
With utilities.
<unk>, who also are concerned about their brand their image and integrity and they don't want to get co mingled with any concerns around horse labor or other trade issues are being beholden to any geopolitical risk that may happen between U S and China over time.
And so it's a different risk profile that they are willing to take and they look to sort of solar is as their counterparty of choice. The same thing with technology companies that we're seeing with huge load growth and not wanting to be exposed or at risk because of inability of modules to be delivered for their projects. So there's a lot of any as many different dimensions.
The elements that factor into this.
I think put us in an advantaged position and also resonates with our strategy around and a responsible so.
The integrity and the transactions and standing by our commitments with our customers.
A number of them fully appreciate what we've done in 2022 alright.
As majority of the projects that get executed in 2022 were for solar modules at least on the utility scale side and theirs.
Theres, a goodwill element of that but I think it's playing through with our Counterparties and you referenced a handful of them as repeat customers. This year between lessor CP levered at <unk>.
Those are great great partnerships that we've created over time that are in that are enduring.
Carbon intensity has always been an advantage of ours as it didn't bedded in our responsible solar approach our tier two flip trend as advantage relative to our competition.
Our water usage overall admissions our ability from a circular economy standpoint, and recycling standpoint, all of that is an advantage to us I don't think it necessarily plays that uniquely with hydrogen, but I think it does play out with our.
Our brand promise and value proposition that we give to our customers.
And our final question today will come from Colin Rusch Oppenheimer <unk> company.
So much guys can you talk a little bit about some of the.
The supply chain, keeping up with your expansion, notably the glass supply chain the dynamics around that.
The second question I'd be curious to hear about it as you're working through.
Some of the portfolios that youre going to supply if you could talk a little bit about that.
Size of those projects, how many of them are getting larger and how much youre seeing in terms of a little bit smaller size is kind of in the 22.
60 megawatt range that that may get built out here.
Yes, its supply chain.
I think John you referenced glass.
Take care.
And the debate the module is two sheets of glass.
Back rail or frame, but some type, which is a bit a little bit of more steel.
Glasses critical key enabler and we recently.
As a joint announcement with us.
In vitro or out of <unk>.
Factory that theyre going to now start up to serve our glass needs. It's a factory that was idle.
Pennsylvania, which will start up and provide cover glass to us. So one of the things that we're doing is we're really diversifying our supply chain for the last standpoint, which is which is really important for us.
We're also in some conversations with them to provide and with other parties.
Coated glass substrate glass.
So we're trying to really broaden our reach and engagement.
What's also nice about this in some of those parties Counterparties that we're working with on the glass in particular are looking at solar as a strategic market that they wanted to be a part of.
And we've got a great opportunity to leverage that with them to enable their strategic asset coupled with ours.
A more optimistic view would asked me.
Six nine months ago, where we were I would say I'm more optimistic now with some of the work. The team has done to enable that supply chain from a glass standpoint.
In particular.
<unk>.
The project generally are larger.
Sure.
We're not really seeing in many of those projects and kind of that.
40% to 60 megawatt.
Most of the projects that were.
Targeting with our customers are all under 100 megawatts. It generally getting larger as you start to get into the hydrogen space, which we're starting to see some opportunities down that path and we know that those are 304 500 megawatt type of projects.
And which will continue to grow.
Does that.
Evolves more and it goes beyond just maybe smaller.
Opportunities are the full scale.
Hydrogen projects.
That are project financed and what have you those are both very very large projects and that's one reason why I think that.
That demand.
Flexion point on hydrogen probably hasnt been fully appreciated with most of his forecast.
And everyone that does conclude our question and answer Stephane Paul that.
And that also concludes today's conference I would like to thank you all for your participation you may now disconnect.
Yeah.
Hum.
Okay.