Q3 2024 First Solar Inc Earnings Call
Yeah.
Speaker Change: Good afternoon everyone and welcome to First Solar Search Code 2021 for earnings call. This call is being left past live on the investor session of First Solar's website and investor. .First Solar's.com. At this time, all participants are in a listen only mode. As a reminder, today's call is being recorded, I would now like to turn the call over to First Solar Investor Relations. You may begin.
Speaker Change: Good afternoon and thank you for joining us. Today the company issued a press release announcing its third quarter 2020-24 financial results. The coffee of the press release and the associated presentation are available on First Allers website at investor.fsl.com
Speaker Change: With us today, Mark Widmar, chief executive officer and Alex Bradley, chief financial officer. Mark will provide a business and technology update. Alex will discuss our bookings pipeline, quarterly financial results, and provide updated guidance.
Speaker Change: and we will open the call to questions.
Speaker Change: Please note this call will include forward-looking statements that involve risk and uncertainties that could cause actual results to differ materially from management's current expectations.
Speaker Change: We encourage you to review the say-pava statements contained in today's press release and presentation for a more complete description.
Speaker Change: It is now my pleasure to introduce Mark Widmar, chief executive officer.
Mark Widmar: Good afternoon. Thank you for joining us today. As we approach the end of 2024, we remain pleased with the progress made across our business, navigating against the backdrop of industry volatility and political uncertainty. With a continuous focus on balancing growth, profitability and liquidity.
Mark Widmar: is noted at our analyst day at late 2023 and our previous earnings call, our story is about the value of a long-term strategic decision making, underpinned by differentiated technology and business model, which endeavors to drive value creation for our shareholders and partners.
Mark Widmar: We expect that the discipline, long-term approach will allow us to work through the outcomes of the upcoming U.S. elections, as well as continued volatility across the solar manufacturing industry.
Mark Widmar: Beginning on slide three, I will share some key highlights from the third quarter.
Mark Widmar: From a commercial perspective, we continued our highly selected approach to contracting with a net 0.4 gigawatts of new bookings since our last earnings call.
Mark Widmar: This brings our year-to-date net bookings to 4 gigawatts and our total contracted backlog to 73.3 gigawatts with order stretching through 2030.
Mark Widmar: For a manufacturing perspective, while we're pleased with record production of 3.8 gigawatts in the quarter, our financial results were impacted by a product warranty charge of $50 million due to manufacturing issues.
Mark Widmar: which we have identified and taken actions to address related to the initial production of our Series 6, Series 7, excuse me, product.
Mark Widmar: primarily attributed to variability in the effectiveness of the glass cleaning process at the beginning of our production line and an error in our process of predicting the engineering performance margin.
Mark Widmar: We inaugurated our new 1.1 billion Alabama facility, which when fully scaled, adds 3.5 gigawatts of vertically integrated nameplate solar manufacturing capacity.
Mark Widmar: The start of commercial operation at the Alabama facility, along with our under construction Louisiana facility, which remains on track to begin operations in the second half of 2025, keeps us on course to achieve our projection of over 14 gigawatts of annual U.S. nameplate capacity.
Mark Widmar: and over 25 gigawatts of global nameplate capacity by 2026.
Mark Widmar: This growth is expected to support an estimated 30,000 direct, indirect, and induced jobs in the U.S. alone, representing $2.8 billion in annual labor income, demonstrating the significant contribution to our nation's economic growth that high-value solar manufacturing can provide.
Mark Widmar: Turning to technology, as planned, we are launching QR production at our lead line in Ohio in Q4 this year.
Mark Widmar: We intend to launch this production in a phased approach, initially producing and selling approximately 0.4 gigawatts of Cure product through Q1 of 2025.
Mark Widmar: Upon successful field performance validation following the deployment of this volume of
Mark Widmar: We intend to permanently convert the Ohio lead line to Cure in Q4 2025, as well as replicate Cure across the fleet, beginning as scheduled with our Vietnam and 3rd Ohio facilities, in time to start capturing upside from our contractual revenue adjusters.
Mark Widmar: In addition, at our new perovskite development line in Perrysburg, this quarter will be the first time we'll be able to run technology samples through an automated process.
Mark Widmar: that simulates in-line manufacturing conditions as we accelerate our efforts to develop the next breakthrough in thin-film photovoltaic technology.
Mark Widmar: With regard to intellectual property, we have recently sent notification letters to Tier 1 solar manufacturers that we believe are infringing on First Solar's TopCon patent portfolio, which I'll discuss in more detail later in the call.
Mark Widmar: While Alex will provide a comprehensive overview of the third quarter 2024 financial results, I would like to highlight our third quarter earnings per share of $2.91, which includes the 50 million product warranty charge referenced earlier.
Mark Widmar: Finally, our leadership in thin film technology and track record of investing in innovation led to First Solar being recognized by MIT Technology Review's annual list of climate tech companies to watch, the only solar technology manufacturing company to be included in this year's list.
Mark Widmar: Furthermore, we were also proud to make our debut as Times Magazine's World's Best Companies in 2024 list.
Mark Widmar: Moving to slide four, we recently published our Annual Sustainability Report and would like to take this opportunity to share a few highlights.
Mark Widmar: In our 25th year, we are doubling down on our commitment to the principles of responsible solar.
Mark Widmar: which drives our company's environmental, social, and governance strategy, leadership, and differentiation.
Mark Widmar: From the health and environmental benefits of achieving greater avoidant emissions through our ultra-low carbon solar technology, to our long-standing leadership in PV recycling and commitment to human rights, transparency, and credible third-party validation.
Mark Widmar: We continue to establish new standards while challenging the industry as a whole to do better.
Mark Widmar: Over the past year, we continue to drive environmental, social, and governance progress as part of our culture of continuous improvement.
Mark Widmar: We successfully reduced our water and waste intensity per watt produced and increased the percentage of women in our workforce in 2023 relative to the preceding year.
Mark Widmar: We continue to build on our longstanding leadership position in PV recycling in 2023, achieving a global average material recovery rate of 95% across our recycled facilities.
Mark Widmar: Today we operate high-value recycling facilities in the U.S., Germany, Malaysia, Vietnam, and India.
Mark Widmar: A shift to producing verifiable ultra-low carbon solar is needed to ensure that the global PV manufacturing industry does not undermine its role in its fight against climate change.
Mark Widmar: Although the industry currently accounts for a small portion of global emissions today, that's changing.
Mark Widmar: A report by Clean Energy Buyers Institute warns that a business-as-usual approach dominated by energy-intensive crystalline silicon
Mark Widmar: would lead PV manufacturing to exceed aluminum manufacturing, currently the fourth most emission-intensive industrial commodity by 2024, 2040.
Speaker Change: We are proud to be leading the charge by having the world's first solar modules to achieve EP Climate Plus designation and meet the industry's first ultra-low carbon solar thresholds for global use.
Speaker Change: Starting the slide five.
Speaker Change: I would like to address the numerous intellectual property challenges concerning crystalline silicon cell technology that are currently ongoing within the industry.
Speaker Change: Historically, PV industry intellectual property claims, particularly related to crystalline silicon technologies, and especially among Chinese headquarter producers, have been limited and seldom asserted.
Speaker Change: This has largely been due to the understanding that cell-related technology advancements were effectively open source with patents and know-how freely shared within a Chinese manufacturing ecosystem.
Speaker Change: Today's intellectual property landscape within the solar manufacturing sector has clearly changed.
Speaker Change: As shown on slide 5, a number of leading manufacturers are asserting patent-related claims against one another.
Speaker Change: Notably, a number of these actions are focused on alleged infringement of Top Gun patents.
Speaker Change: As just one example, earlier this month, TRIDA filed a Section 337 complaint at the U.S. International Trade Commission, or ITC, against the fleets of Ren Energy and Adani.
Speaker Change: According to the complaint, TRENA is seeking to exclude TopCon solar cells, modules, and components from importation into the United States due to alleged patent infringement, which the ITC is now investigating.
Speaker Change: As disclosed earlier in the third quarter, First Solar also possesses a Top Gun patent portfolio through our acquisition of Tetrasun in 2013.
Speaker Change: which we have begun to leverage as part of our ongoing efforts to develop the next generation of PV technologies.
Speaker Change: Our Top Gun portfolio includes patents and patent applications in the United States,
Speaker Change: Australia.
Speaker Change: Canada
Speaker Change: China
Speaker Change: Europe, Hong Kong, Japan, Mexico, Malaysia, Singapore, South Korea, Vietnam, and the United Arab Emirates, with patent terms extending to 2030.
Speaker Change: Note, regarding the India market, although First Solar does not possess a TopCon patent in India, several jurisdictions where we do have patents are sourcing India-bound cell manufacturing and exports.
Speaker Change: We believe we will be able to assert our patent rights in these jurisdictions against manufacturers and exporters of infringing India-bound products.
Speaker Change: While a number of other market participants are claiming they too own Topcon patents, it is important to note that as with any mature technology, it is not unusual that multiple key patents may be held by multiple and related parties.
Speaker Change: Without ownership or license covering every relevant patent used in the manufacturing process, a manufacturer does not have the freedom to produce and sell an otherwise infringing product.
Speaker Change: Since our July announcement regarding First Solar's Top 10 patent portfolio, we have advanced our investigation into several leading crystalline silicon solar manufacturers for potential infringement of our patents.
Speaker Change: The result of these efforts has enhanced our conviction that we possess fundamentally valid and enforceable patents in relation to Top Gun cell technology.
Speaker Change: To that end, we have recently begun sending letters to various solar manufacturers shown on slide 5, under the letterhead of a law firm with one of the world's leading intellectual property practices.
Speaker Change: providing notice to each recipient that they are using First Solar's Top Gun patents without a license and reserving First Solar's rights in their entirety.
Speaker Change: We are currently in negotiation with multiple interested parties in rights to our Top Gun patent portfolio.
Speaker Change: finally, during the third quarter.
Speaker Change: We achieved a victory upholding the validity of our Chinese Top Gun patents.
Speaker Change: in the Patent Reexamination and Invalidation Department, or PRID,
Speaker Change: of the China National Intellectual Property Administration, which is the patent office in China.
Speaker Change: The PRID upheld the validity of all 17 claims of our Chinese Top Gun patent against a number of asserted prior art references.
Speaker Change: Together with our aforementioned outreach to manufacturers aimed at discussing potential structures to authorize the actual or planned use of our Topcon patents, our recent victory in China provides third-party validation of the strength of our Topcon patent portfolio.
Speaker Change: First Solar has long held a commitment to fundamental concepts of respect for the integrity of property rights.
Speaker Change: As shown on slide five and reflected in numerous public announcements and public reporting over the past year, First Solar is not alone in seeking to protect its intellectual property rights, with a number of other leading manufacturers taking action to protect their rights as well.
Speaker Change: To the extent these manufacturers, the majority of which are Chinese-based, continue to report significant financial loss in their race to the bottom, it is reasonable to expect that they will continue to aggressively assert these claims.
Speaker Change: We believe the IP-based uncertainty surrounding crystalline silicon manufacturers' freedom to manufacture and sell top-down solar products, and the potential complications for a PV project utilizing potentially infringing solar cells,
Speaker Change: should be taken in consideration by developers, project owners, and PPA offtakers, as well as debt and tax equity financing parties.
Speaker Change: In addition, we believe the current intellectual property landscape, particularly as it relates to top-cum-cell technology, underscores one of First Solar's key competitive differentiators of delivering a unique proprietary home-grown cadmium telluride semiconductor technology, in contrast to the highly commoditized crystalline silicon modules.
Speaker Change: I'll now turn the call over to Alex to discuss our bookings, pipeline, and finances.
Alex Bradley: Thanks, Mark.
Alex Bradley: Beginning on slide 6, as of December 31, 2023, contracted backlog totaled 78.3 gigawatts with an aggregate value of $23.3 billion.
Alex Bradley: Through September 30, 2024, we had recognized 9 gigawatts of sold volume and contracted an additional 3.5 gigawatts.
Alex Bradley: This includes a reduction to our bookings of 0.4 GW due to the termination of a contract with Plug Power, a former corporate customer who experienced delays to their project, as first noted on our earnings call in February of this year.
Alex Bradley: After significant attempts to negotiate a mutually beneficial solution failed and we were unable to renegotiate the contract to our satisfaction.
Alex Bradley: In Q3 we elected to terminate the contract and pursue our contractually agreed termination remedies.
Alex Bradley: This brings our total backlog to 72.8 gigawatts at quarter-end with an aggregate value of 21.7 billion, implying an ASP of approximately 29.8 cents per watt, excluding adjusters where applicable.
Alex Bradley: Since the end of the third quarter, we've entered into an additional 0.5 gigawatts of contracts, increasing our total backlog to 73.3 gigawatts.
Speaker Change: What about ASEs for our 0.8 gigawatts of gross bookings since the prior earnings call?
Speaker Change: This includes approximately 180 megawatts of domestic India shipments.
Speaker Change: and an ASP of approximately 19 cents per watt.
Speaker Change: Given the India market price environment, I'll further discuss our strategy that relates to sales of our India produced product shortly.
Speaker Change: It also includes a booking for 50 megawatts of aged low bin inventory that would not be usable by our traditional utility scale customer base and that would otherwise be scrapped to be sold for a non-traditional contracting arrangement.
Speaker Change: structures a true non-contingent sale with a module distributor at an initial ASP of five cents per watt. We expect to receive upside revenue sharing based on the final sale price, which we've reflected as incremental revenue at the time of sale to the end user.
Speaker Change: The remaining approximately 560 megawatts of bookings to our traditional U.S. utility scale customer base is at an ASP of approximately 30.4 cents per watt, excluding adjusters.
Speaker Change: or up to $0.32 for watts, assuming the realization of adjusters were applicable.
Speaker Change: So it relates to the U.S. utility scale market, the updated Domestic Content Bonus Safe Harbor Guidance.
Speaker Change: issued by the Department of Treasury and IRS in May 2024 sets out a more practical points-based calculation rather than a cost-based calculation.
Speaker Change: for a Renewable Energy Project to qualify for the bonus.
Speaker Change: placing a high value on vertically integrated manufacturing that utilizes domestically procured components.
Speaker Change: The profile exemplified by First Solar's growing domestic manufacturing operations.
Speaker Change: Given the high domestic content embedded in our U.S.-produced Series 6 and Series 7 modules, which critically feature a domestically-manufactured cell, and which may incorporate domestic components for all the points-eligible components specified in the Elective Safe Harbor in the May 2024 updated guidance,
Speaker Change: Our production fleet greatly enables our customers' ability to satisfy the domestic content bonus criteria.
Speaker Change: Under the new Elective Safe Harbor, there are opportunities for First Solar to optimize its supply chain and allocation strategy.
Speaker Change: including with deliveries to customers of modules produced across our global fleet.
Speaker Change: This approach allows us to optimize our production base, while ensuring that our customers receive the points necessary for them to qualify for, and critically finance, the domestic content bonus.
Speaker Change: To that end, during the quarter, we began effecting this optimization strategy to amend contracts, while maintaining the ASP under the original module sale agreement.
Speaker Change: A substantial portion of our backlog includes opportunities to increase the base ASP through the application of adjusters.
Speaker Change: if we realize achievements within our current technology roadmap as of the expected timing for delivery of the product.
Speaker Change: At the end of the third quarter, we had approximately 37.3 gigawatts of contracted volume with these adjusters.
Speaker Change: which, if fully realised, could result in an additional revenue of up to approximately $0.7 billion, or approximately 2 cents per watt, the majority of which would be recognised between 2026 and 2028.
Speaker Change: This amount does not include potential adjustments, which are generally applicable to the total contracted backlog, but to the ultimate module being delivered to the customer, which may adjust the ASP under the sales contract upwards or downwards.
Speaker Change: And for increases in sales rate or applicable aluminum or steel commodity price changes.
Speaker Change: Reflected on slide 7, our total pipeline of potential bookings remains strong, with bookings opportunities totaling 81.4 gigawatts, an increase of approximately 0.8 gigawatts since the previous quarter.
Speaker Change: Our mid- to late-stage bookings opportunities decreased by approximately 5.1 gigawatts to 23.5 gigawatts, and that includes 20.9 gigawatts in North America and 2.3 gigawatts in India.
Speaker Change: within our mid- to late-stage pipeline are 3.9 gigawatts of opportunities that are contracted subject to conditions precedent.
Speaker Change: including in the U.S. a 620 megawatt module supply grid with a customer that will be supplying power to a hyperscaler, as referenced on our last earnings call, and 0.8 gigawatts in India.
Speaker Change: As a reminder, signed contracts in India would not be recognized as bookings
Speaker Change: And note that we've reduced our opportunities that are contracted subject to conditions precedent for India by 0.4 gigawatts as a result of terminating a defaulted module supply agreement with an Indian affiliate of a European oil major who is reportedly in the process of selling this business.
Speaker Change: Including our revenue for the third quarter is a contractual termination payment associated with a custom default under this contract.
Speaker Change: As stated on previous earnings calls, given our diminished available supply through 2027, the long-dated timeframe into which we're now selling, the need to align customer project visibility with our balanced approach to ASPs, payment security, and other key contractual terms.
Speaker Change: and given the uncertainty related to the policy environment due to the upcoming US election, we'll continue to leverage our position of strength in our contracted backlog and be highly selective in our approach to new bookings this year.
Speaker Change: We intend to continue forward-contracting with customers who prioritize long-term relationships and appropriately value our points for differentiation.
Speaker Change: On slide 8, I'll cover our financial results for the third quarter.
Speaker Change: Net sales in the third quarter were $0.9 billion, a decrease of $0.1 billion compared to the second quarter.
Speaker Change: Decrease in net sales was driven by a 12% decrease in the volume of megawatts sold and the aforementioned increase in our Series 7 product warranty liability.
Speaker Change: partly offset by expected payments associated with contract terminations in the US and India.
Speaker Change: Gross margin was 50% in the third quarter, compared to 49% in the second quarter.
Speaker Change: The increase was primarily attributable to higher contract termination payments and a higher mix of modules sold from our U.S. factories, which led to $264 million of Section 45X tax credits during the period.
Speaker Change: Partially offset by the aforementioned increase in our Series 7 product warranty liability, higher underutilization charges, and additional inventory reserves for lower bin modules manufactured at our international factories.
Speaker Change: During the third quarter, we experienced certain planned downtime for Cure technology upgrades, as well as the unplanned downtime for the CrowdStrike event.
Speaker Change: and various other operational challenges, which I will describe shortly, and equipment repairs.
Speaker Change: We also encouraged certain underutilization charges at our new factory in Alabama as we began ramping production during the period.
Speaker Change: SG&A R&D and production start-up expenses totaled $123 million in the third quarter, decreased to approximately $3 million compared to the second quarter.
Speaker Change: This decrease was primarily driven by lower R&D testing expenses as we sought to maximize production throughput, while transitioning certain testing activities to our recently dedicated Jim Nolan Center for Solar Innovation, along with a reduction in incentive compensation expenses.
Speaker Change: Our third quarter operating income was $322 million which included depreciation, amortization and accretion of $111 million.
Speaker Change: ramp costs of 25 million
Speaker Change: Production start-up expense of 27 million and share-based compensation expense of 7 million.
Speaker Change: So his quarter other income was $5 million, which was consistent with the second quarter.
Speaker Change: Tax expense for the third quarter was $14 million compared to $28 million in the second quarter.
Speaker Change: This decrease was driven by higher forecasted income in lower tax jurisdictions and the second quarter change in our position related to reinvesting the accumulated earnings of a foreign subsidiary which resulted in an additional tax expense in the prior period.
Speaker Change: Combination of the aforementioned items led to third quarter earnings per diluted share of $2.91.
Speaker Change: Next, go to slide 9 to discuss Select Bounty Items and Summary Cash Flow Information.
Speaker Change: Our cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities entered the quarter at 1.3 billion compared to 1.8 billion at the end of the prior quarter.
Speaker Change: This decrease was primarily driven by capital expenditures associated with our new U.S. factories in Alabama and Louisiana, along with an increase in working capital.
Speaker Change: Total debt at the end of the third quarter was $582 million, an increase of $23 million from the second quarter as a result of higher working capital loans in India, which helped support the continued ramp of our new plan to the region.
Speaker Change: Our net cash position decreased by approximately 0.5 billion to 0.7 billion as a result of the aforementioned factors.
Speaker Change: Cash flows used in operations were $54 million in the third quarter and capital expenditures were $434 million during the period.
Speaker Change: Our full year P&L guidance, first issued in February, remained unchanged through our Q1 and Q2 earnings calls in May and July respectively.
Speaker Change: However, in July, we noted that following the termination for convenience of 0.4 gigawatts of contract capacity by a European power and utilities customer who was selling a portfolio of U.S. development assets,
Speaker Change: We expected volume sold, revenue, and net cash guidance to be towards the bottom end of our guidance range.
Speaker Change: As it relates to our updated guidance, there are several drivers of the forecast changes.
Speaker Change: Firstly, since our last earnings call where we referenced the global CrowdStrike IT outage, which temporarily idled our fleet for approximately two days, we have experienced a number of additional operational challenges.
Speaker Change: These include Hurricanes Francine, Helene, and Milton, which made landfall across the southeastern United States, impacting not only module deliveries within the region but also our Louisiana factory construction, as well as causing logistical impact with our distribution centers in South Carolina and Texas.
Speaker Change: These distribution centers, along with other transport infrastructure including the ports themselves, were also affected by the International Longshoremen's Association strike.
Speaker Change: In addition, an external security alert at our Ohio location, while ultimately unsubstantiated, resulted in full evacuation of the facilities with adverse consequences to scheduled production output.
Speaker Change: Each of these events, whilst not individually material, have in totality had an adverse impact on operational and financial performance.
Speaker Change: Secondly, as it relates to India, as referenced on both our Q1 and Q2 earnings calls, we continue to remain concerned by Chinese dumping into the Indian market, which has led to an artificially low and challenged ASP environment for domestic sales.
Speaker Change: In response to this behavior, which threatens India's aspirations to end its reliance on an adversary by developing a domestic manufacturing base that serves a domestic market,
Speaker Change: The Indian Ministry of Commerce and Industry has recently initiated an anti-dumping investigation into solar cell imports from China.
Speaker Change: However, despite this investigation, domestic India ASPs remain depressed as a function of this dumping behavior and as reflected by the approximately 19 cents per watt ASP for our recent India bookings discussed earlier.
Speaker Change: With such artificially depressed ASPs in the India market, we see the updated Safe Harbor Guidance, the IRA domestic content bonus, released in May 2024, providing us with an opportunity to shift India production from fixed tilt to tracker product.
Speaker Change: and ship a portion of our future Indian manufactured product into the U.S. market at higher ASPs.
Speaker Change: net of incremental production of freight costs
Speaker Change: We expect shipping this product to the U.S. to be gross margin accretive relative to domestic India sales.
Speaker Change: However, given transit and delivery times to the U.S. market...
Speaker Change: We expect this to reduce the volume of products produced by our India factory and sold in 2024 by approximately 0.9 gigawatts.
Speaker Change: Thirdly, and as again previously noted on our earnings call this year, we have seen some requests from customers to shift delivery volume timing out as a function of project development delays.
Speaker Change: We continue to work with our customers to optimize the delivery schedules for their contracted volumes to the extent we are able to accommodate them.
Speaker Change: This has been a driver of the back-ending of revenue and gross margin to Q4 of this year.
Speaker Change: In some cases we are enforcing our contractual rights to ship modules to warehouses in the event that customers are not ready to receive the product as scheduled under the contract.
Speaker Change: In other cases, we're able to accommodate schedule shifts, either through reallocation to another customer or through interim storage of the module.
Speaker Change: Despite the termination of the plug power contracts and 0.4 gigawatts of modules, originally assumed to be sold this year,
Speaker Change: and a recent request increased the delivery schedule flexibility, we have largely been able to mitigate the impact to our sold volume guidance, which is modestly reduced by approximately 0.3 gigawatts.
Speaker Change: Fourthly, we continue to enforce our contractual rights in the event of contractual breach.
Speaker Change: The aforementioned plug power contract termination resulted in a termination payment entitlement recognized as revenue in the third quarter.
Speaker Change: Additionally, during the quarter, we enforced our termination rights under two contracts in India, which also resulted in termination payment entitlements recognized as revenue in Q3.
Speaker Change: While cash and other liquid security deposits cover a portion of these payments, in order to collect the balance owed, we expect to litigate.
Speaker Change: To that end, we have filed a complaint against Plug Power and commenced arbitration proceedings against one Indian customer. We anticipate initiating arbitration proceedings against the second Indian customer, in all cases seeking to enforce our full termination payment rights on the respective contracts.
Speaker Change: The combined effect of these impacts would serve to reduce our full year 2024 volume sold, revenue, and net cash guidance numbers below those provided on our Q2 earnings call in July.
Speaker Change: with the contractual termination payments largely offsetting the reduced sole volume, resulting in gross margin, operating income, and earnings per diluted share guidance within the previous ranges provided.
Speaker Change: So with this context in mind and together with the impact of the aforementioned 50 million product warranty charge related to the initial production of our new Series 7 products, our updated guidance ranges are as follows.
Speaker Change: We expect volume sold of 14.2 to 14.6 gigawatts, resulting in net sales guidance of between 4.1 and 4.25 billion.
Speaker Change: Gross margin is expected to be between $1.95 and $2 billion, which includes $1.02 to $1.05 billion of Section 45x tax credits.
Speaker Change: and 60 to 75 million of ramp costs.
Speaker Change: SG&A expenses are expected to be $445 to $475 million, which includes $185 to $195 million of SG&A expense, $190 to $200 million of R&D expense,
Speaker Change: and 70 to 80 million in production start-up expenses.
Speaker Change: Operating income is expected to be between 1.48 and 1.54 billion as inclusive of 130 to 155 million of combined ramp costs and plant startup expenses and 1.02 to 1.05 billion of section 45x credits.
Speaker Change: We expect interest income, interest expense, other income and tax expense to net to a total expense of approximately $80 million.
Speaker Change: This results in a full year 2024 earnings per diluted share guidance range of $13 to $13.50.
Speaker Change: Capital expenses are forecast to be between 1.55 and 1.65 billion, a reduction of 250 to 350 million from the prior forecast, largely as a result of the timing of payments related to capacity expansion and R&D initiatives.
Speaker Change: Our year-end 2024 net cash balance is anticipated to be between 0.5 and 0.7 billion as a result of the aforementioned changes to volume sold and revenue and the timing of receivables, partially offset by reductions in capital expenditures.
Speaker Change: Now I'm going to call back to Mark for his concluding message.
Mark Widmar: All right, thanks Alex. As you all know, a week from today, U.S. voters go to the polls and our industry is focused on the results and potential implications of those results.
Mark Widmar: While we cannot predict the outcome of the upcoming elections, we are optimistic about the impact of our work to constructively engage with and inform policymakers across the political spectrum.
Mark Widmar: about the economic and strategic benefits of high-value domestic manufacturing.
Mark Widmar: We are further optimistic that, regardless of the results,
Mark Widmar: We are continuing to build a company that endeavors to exit this decade in a stronger position than when it entered it.
Mark Widmar: As we've said before, we are not immune from the longstanding challenges resulting from the continued irrational pricing and reckless capacity expansion behavior of the Chinese-dominated crystal silicon industry.
Mark Widmar: and we must remain nimble in the face of near-term challenges.
Mark Widmar: presented by matters such as project development delays, particularly here in the United States market.
Mark Widmar: That's it. By continuing to execute a strategy of discipline growth underpinned by demand and resiliency in our order backlog and when necessary and only after collaborative spirited efforts
Mark Widmar: of Acceptable Accommodations cannot be reached. We will vigorously enforce our commitments.
Mark Widmar: By continuing investment in capital and research and development to advance the next generation of thin-film photovoltaics, which we believe presents the future of this industry, by advancing technology leadership through the development of strategic intellectual property portfolios and leverage those rights.
Mark Widmar: and by our long-standing advocacy for the development and enforcement of laws that level the playing field for domestic high-value manufacturing that today are arguably within the central policy position both sides of the aisle.
Mark Widmar: by continuing to deliver upon our commitments and our history of providing certainty to our customers, which includes making efforts to do right by our customers on those occasions when we fall short of delivering on those commitments.
Mark Widmar: And by adhering to our decision-making framework of balancing growth, profitability, and liquidity, we believe First Solar's position to not only maintain, but to build upon, our more than 25 years of industry leadership.
Speaker Change: To conclude, Alex will now summarize the key messages from today's call on slide 11.
Alex Bradley: We continue to be disciplined in our approach to contracting, with 4 GW of net bookings year-to-date, leading to a resilient contracted backlog of 73.3 GW.
Alex Bradley: Our continued focus on manufacturing technology excellence resulted in a record quality production of 3.8 gigawatts.
Alex Bradley: Our Alabama factory commenced operations and our Louisiana factory remains on schedule.
Alex Bradley: From a technology perspective, we expect to launch our Cure lead line and commission our perovskite development line in Q4 of this year.
Alex Bradley: We also sent letters to certain solar manufacturers providing notice that they're using FirstSolar's TopCon patents without a license and reserve FirstSolar's rights in their entirety.
Alex Bradley: Financially, we earned $2.91 per diluted share. We ended the quarter with a gross cash balance of $1.3 billion, a $0.7 billion net of debt.
Alex Bradley: We're revising our full year 2024 guidance with full year earnings to share guidance $13 to $13.50
Alex Bradley: And with that we conclude our prepared remarks and open the floor for questions.
Speaker Change: Thank you sir and just a reminder everyone that is star one if you have a question. We'll go first to Phillip Shen, Roth Capital Partners.
Speaker Change: Thank you. Bye.
Phillip Shen: Hey guys, thanks for taking my questions. First one is on the CHIPS ITC. There was news recently that wafer and ingot facilities can take advantage of that in the U.S. and our check suggests that you guys have a door to perhaps tap into that and so I was wondering if that's the case.
Phillip Shen: Do you think the recent facilities that you've brought online over the past couple years...
Phillip Shen: could qualify, and then also if you can opine on whether or not you think you can get that, that'd be great.
Speaker Change: Shifting over to bookings price, it sounds like it was 30.4 cents per watt on the incremental 400 megawatts.
Speaker Change: That's down a touch from the prior quarter. Can you comment on why and then what do you expect there? And then finally, sorry to throw so many, with India we understand what you're doing with the unsold modules, but on a go-forward basis do you think
Speaker Change: You lower the India facility utilization or do you think you What is the utilization at now and you continue to operate it at that level or even higher ahead? Thank you guys
Speaker Change: All right, Phil, I'll take the first and the last one, all that out. Let's talk about the bookings ASP. As it relates to the...
Speaker Change: ITC and the applicability to WIC facilities that was recently announced. Clearly, we're very much engaged and aware and we're evaluating the potential applicability to our facilities. What I would say in general is the spirit of what we've seen in a lot of the
Speaker Change: the intent of the IRA is to be technology neutral and to allow for various technologies to receive the same similar types of benefits. We saw that on the manufacturing tax rate, the 45x, right?
Speaker Change: 17 cents or so of value, you know, for the equivalent.
Speaker Change: journey from a wafer to a cell to a module for crystalline silicon to other technology like thin film.
Speaker Change: the future of perovskites and thin films. So the intent and spirit was to provide
Speaker Change: equivalency across those respective technologies, not advantage one technology over the next. Clearly, we're very happy that this decision has been made. I think it helps create that vertically integrated supply chain that we believe we need to make this enduring. And that was the intent of IRA is to enable this opportunity to transition to a domestic industry and to be vertically integrated in the supply chain. We will continue to be actively engaged and to see to the extent that we can qualify for those benefits and potentially have it to be applicable to our.
Speaker Change: Be safe. Bye-bye. Goodbye. Bye.
Speaker Change: China's doing everything, you know, it's doing.
Speaker Change: Globally and it's not discriminating on any particular market and it has such excess capacity and it's dumping
Speaker Change: at extreme levels right now that does make it difficult for domestic industries to compete with imports.
Speaker Change: And we're done.
Speaker Change: What we're seeing in India is cell and wafer in particular at levels that make it uneconomical to manufacture domestically and to compete with the value of those imports, even in the case where there's tariffs that are associated with them. That's starting to change.
Speaker Change: an anti-dumping case that's being taken up right now on cells.
Speaker Change: to evaluate that that exact behavior and impact and we're optimistic that that'll move forward in a constructive way as we've mentioned before that
Speaker Change: There's also...
Speaker Change: the equivalent of the approved list of module manufacturers, that the intent is to now move that to cell manufacturers, that would create a non-trade barrier for imports coming from China in particular. The intent is that that would be up and running by the end of Q1 of 2026. So they're doing a lot of things to transition the market, which we think is healthy.
Speaker Change: We will continue to...
Speaker Change: be focused on the domestic market.
Speaker Change: And we will be selective in the opportunities in which we engage, if we can get prices which we believe are appropriate for the technology and value that we're creating.
Speaker Change: In the interim, though, we have the opportunity to export that same technology.
Speaker Change: but for the mounting system, so the product in India is largely fixed tilt.
Speaker Change: we will be making a tracker product to ship it into the U.S. market.
Speaker Change: So again, the mounting structure is slightly different, but it's actually the same technology, same product. We'll be shipping that into the U.S. market, and we're optimistic that we can take
Speaker Change: and being selected and limited opportunities in India that will continue to run India at its full utilization. Today, as we transition to the Tracker product, it is running at its full utilization.
Speaker Change: The tracker, the fixed-till product we were running in Q3 was at a level below the full absorption. And so we did see some underutilization charges for that Indian facility. But where we are today, it is running at full utilization to make a tracker product that will support the U.S. market.
Speaker Change: Yeah, so on the ASPs, I wouldn't read into anything on where that 30.4 ASP is just given how small a volume we're booking.
Speaker Change: And that's a function of that discipline-selective approach that we talked about. But just to clarify on the volumes, I think you said 0.4, so it's 0.4 gigawatts of net bookings. We did have...
Speaker Change: the plug debugging in there of 0.4 so it's
Speaker Change: of South Africa, and then about 50 megawatts of volume. It is going into the U.S., but it's a lot of old, low-bin inventory that otherwise would likely have been scrapped, and we're selling that under a construct where it's recognized today as a booking.
Speaker Change: at a very low ASP 5 cents, but what will ultimately happen is...
Speaker Change: The person we're selling that to will then go out and sell that into the market, and there's a revenue sharing, so ultimately we'll get a much higher price for that. But today it gets recognized at that lower number.
Speaker Change: So what you're seeing is actually about 0.6 gigawatts or so, a little under 600 megawatts of new US bookings, and that's what that 30.4 relates to. And again, that number's also pre-adjusted. So we've adjusted on top of that, a lot of that volume being booked into a time frame where we will have technology adjusted. That goes up to 32 cents.
Speaker Change: We'll take our next question from Brian Lee, Goldman Sachs.
Brian Lee: Hey guys, good afternoon. Thanks for taking the questions. Maybe a follow-up to Phil's question for you, Mark.
Brian Lee: No, it might be tough to answer specifically, but on the Q1 call you guys had said...
Brian Lee: I think it was 2.6 gigawatts of production in India, shipping a gigawatt plus to the US, and then presumably the rest shipping domestically in India. Clearly, that calculus is changing here. So can you give us a sense of what that mix would look like going forward, and then how many quarters?
Speaker Change: you know, it does take to re-engineer and then reallocate that India volume, you know, back to the U.S. where it sounds like you're, you know, you're going to take advantage of better pricing. And then just on the rest of your guidance, it seems
Speaker Change: You know, if you do the math, it's 5.4 gigawatts or so in that neighborhood of sold volume in Q4. It's significantly higher than any run rate you've seen in the past would be a record. How de-risked do you see that, you know, volume sold level, especially in the context of?
Speaker Change: You're mentioning some, you know, some pushouts and things that maybe aren't staying on customer timelines as you might have been initially anticipated. Thanks guys.
Speaker Change: to India and ability to flex and to move from a fix to a track product and it's real It's you know the timing from within the factory. You've got a day or so a couple days of downtime
Speaker Change: So to move, again, the only delta that we're making is the mounting structure on the back. So instead of being a steel rail that accommodates a fixed structure, it's a steel rail that accommodates a tracker mounting. There is some timing that you have to work with your supply chain to make sure that you're
Speaker Change: rail supplier in particular, as it pivots from one spec to another spec. So there's a little bit of notice to our supply chain to give them a heads up. But the ability to toggle back and forth, we got to a point where we were pretty nimble. Now we worked a lot on that to make sure that we could, our back end assembly process, particularly in our pack out, to accommodate the flexibility in programming the robots as well as the automated guided vehicles and everything to toggle back and forth very quickly depending on the mix of product that we want to manufacture. So we've gotten pretty good at doing that.
Speaker Change: And, you know, Ryan, in terms of the opportunity, you know,
Speaker Change: The way, especially with the new point system,
Speaker Change: we've got, we'll have 14 gigawatts of series 7 capacity and it's very very easy to blend
Speaker Change: Series 7, domestic with Series 7, international.
Speaker Change: at the same in the same projects, right? They're the same products. There's no uniqueness of either product. You know, as we transition across our roadmap, we'll have to be mindful of how we transition domestic factories with international factories.
Speaker Change: So if we make a BiPri product with Series 7, we're going to want to make sure that at least for the blending across the geographies, we'll want to make sure India is also producing a BiPri product because it's uneconomical, really, or it's just not ideal to make a BiPri product domestically in a
Speaker Change: in a monofacial product internationally and then put them in the same projects is not the ultimate outcome of what you would try to accomplish. But ability is flexible. You know, we intend to run the factory full out, you know, probably.
Speaker Change: If I had to give you a view longer term, given what we're seeing on pricing, that things do stabilize and move in a more positive direction, I would say over the next couple of years it's probably going to be, you know,
Speaker Change: and the implied sold volume. But there's continued risk each and every day with scheduled movements and shifts and what have you. But we have...
Speaker Change: coordinated with our customers to understand where they are in terms of their projects for receipts of modules and to the extent that they are seeing some delays on their part.
Speaker Change: we're moving towards moving those into warehouses. But in some cases, it may be in our warehouse.
Speaker Change: and then charging the customer for that warehousing cost, or it could be at their respective warehouse.
Speaker Change: and it's just under the premise of enforcing the right to the contract. As Alex indicated and I indicated in my remarks as well, we will continue to be accommodated and flexible where we can.
Speaker Change: But at this point in time, given the inventory bill that we have over the first three quarters of this year, we need to move that inventory to other locations and hopefully into projects, but it's not to a customer-located warehouse.
Speaker Change: Brian, just a couple of other comments on that. So as we begin ramping up QEAR at the back end of this year, we are assuming that volume gets sold. Now, it's not a significant amount of volume, but as with any ramp, you've got risk around early production. And just given its U.S. volume and have IRA dollars attached to it, even a small amount of volume there can have some more material impact to dollars.
Speaker Change: And the other I would say is, as we noted on the call, we have seen operational challenges,
Speaker Change: and so as you start to ship more and especially as we look at the back end of the year, any event like that can have a greater impact as we're trying to get more product out the door. So those are two other things just to bear in mind as we think through the guidance for Q4.
Speaker Change: Up next, we'll hear from Julian Dumoulin-Smith, Jeffrey.
Julian Dumoulin-Smith: Hey, good afternoon team. Thank you guys very much. Appreciate it. If I can follow up on a couple things. First, a small detail coming out of the queue, just with respect to the S7 manufacturing warranty piece. You kind of alluded to some ongoing risks. Have you fully remediated the backdrop here around the $50 million?
Julian Dumoulin-Smith: I just wanted to get a little bit more color there, and more specifically, comfort level on resolving that prospectively. And then if I could go to the second question as it related to it, going back to what you were talking about a second ago with respect to India, I just want to understand the safe harbor dialogue and what you anticipate doing here. Is there a potential to effectively swap in panels maybe from a different origin than what had been previously contemplated? Is this a net increase?
Julian Dumoulin-Smith: in overall blending of foreign panels in, or is this just about providing greater latitude of where those panels are coming from? Just wanted to make sure I understood exactly what you were saying there. Thank you.
Speaker Change: On the warranty, I'll provide a little bit more color just because there may be other questions as well. I think I may have stumbled over in my prepared remarks and I may have referenced Series 6, and I'm glad, Julian, you picked up Series 7. That's clearly what Alex indicated and also what's in our filing. This is a manufacturing issue that's specific to our initial production of Series 7.
Speaker Change: It is an issue that there's variability in terms of the production process that will impact some models, and in some cases, it won't impact other models, though.
Speaker Change: In some cases, we may see a shortfall in performance. In other cases, there may be no underperformance. It's an issue that
Speaker Change: generally needs to be identified after the modules have been deployed and they're in the field so that we can observe what is happening. And then to the extent that there's a shortfall in the field, then we'll bring them in and we'll do lab testing if required to determine if there's a warrantable claim or not.
Speaker Change: There's two primary issues.
Speaker Change: Both were laid up to start up to of a new technology the first one And these are more these are manufacturing issues, and I want to make sure there's
Speaker Change: clarity around this. This is not a reflection of anything, any type of defect or performance problem associated with the fundamental device.
Speaker Change: What happened with our initial startup, we have a process when we drop the first piece of glass into the manufacturing process. And what we do is we actually grind the edges of the glass. And actually on the corners we'll round them. There can be...
Speaker Change: residual chemicals or other particles that can get onto the glass. So the very next step in the production process is to wash it.
Speaker Change: Series 7 has a longer, we refer to it as a dwell time, so the time between the completion of the grind to when the actual module is washed.
Speaker Change: And as a result of that, some of the materials were effectively calcifying onto the glass, and we could not properly clean them through the wash process. So this was.
Speaker Change: But ultimately led to what we're starting to see in the field
Speaker Change: It's an easy remediation and we have remediated and we just changed the washing process to make sure that after the grind process that we are properly washing the module and removing all the intended particles and any residual chemicals that may come out as part of the grind process. So that's the first one and that has been been remediated.
Speaker Change: The other one was effectively referred to it as an engineering performance margin. Anytime when we launch a product, you know, we have to do extensive reliability tests, quality tests.
Speaker Change: which is done mainly in a lab and a lot of it is done through accelerated testing.
Speaker Change: to determine the prediction of future field performance.
Speaker Change: This is also data that we share with independent engineers and others as they also, as we work through our qualification process.
Speaker Change: for a particular technology or a particular product.
Speaker Change: What happened here is we effectively had an error in the calculation.
Speaker Change: So...
Speaker Change: The calculation of the engineering performance margin was underrepresented.
Speaker Change: We found this out through, again, testing of modules and return from the field.
Speaker Change: and determined that, yes, we had an error in our calculation and we had to change our engineering performance margin, which that has been changed as well. So both of the fundamental issues that were identified have been corrected and remediated and current production right now will, you know, obviously not have the adverse implications we had upon the initial launch that we saw with Series 7. Look, I also want to put it in perspective. It's only been a little over a year since we started shipping Series 7. You know...
Speaker Change: while we do deploy modules into test sites.
Speaker Change: You know, it is, there are.
Speaker Change: Only a few
Speaker Change: dozens of models that get deployed into a test site. And when you have variability in your manufacturing process, you won't really see the complete variation that you have through your production process until the models are actually deployed into the field. And that's effectively what's happened here. And so we've gotten test data now that we've concluded that there will be incremental.
Speaker Change: Charges to our warranty because of those performance issues that effectively escaped our quality operating system But we've taken corrective action to address and we take corrective action to create a more robust and resiliency to our overall QoS system that we have
Speaker Change: Again, I want to emphasize, this is not...
Speaker Change: fundamental to the device.
Speaker Change: This is simple, one is a calculation error and the other is a manufacturing process that we didn't fully understand. As we did work through our change management system, the impact of a longer dwell time between wash, excuse me, grind and wash would have an adverse implication to the field. It did not show up in any of our accelerated testing. It did not show up in any of our performance testing that we do before we ship modules. This is something that only manifests itself into the field.
Speaker Change: We're very happy that we caught it. We will stand behind our technology and address everything we need to with our customers. And we've corrected the problem going forward.
Speaker Change: And we'll take the next question from Kashi Harrison, Piper Sandler. Thanks.
Speaker Change: Good afternoon. Thanks for taking the questions.
Speaker Change: Okay, it feels like perhaps there's going to be a broader strategic pivot towards sending
Speaker Change: maybe not quite the 25 gigs, but close to the 25 gigs.
Speaker Change: of Product, eventually to the U.S. in coming years. Based on your discussions with the customers, do you think that the U.S. market will have enough demand to absorb these volumes? And then just one quick follow-up on the CURE plan. Just wondering how we should think about the CURE gigawatts that could be recognized next year, the ASP uplift, and then the incremental margins for CURE. Thank you.
Speaker Change: we do need to think through 27 as it relates to incremental U.S. demand, or again, hopefully getting to a point in time by 2027 where we see a more robust market in India and we get to a more balanced view of supply and demand of the production facility in India to accommodate the India market. But I think if we ultimately have to bring a gig and a half to a gig seven five into the U.S. market, at least fundamentally right now, what we're seeing is pretty strong demand in order to make that happen.
Speaker Change: And again, the nice thing about this is we're still enabling the domestic content value creation with our customers.
Speaker Change: that's the value that they're willing to pay for. And we also believe that the domestic content criteria will evolve, and I think most of you have seen some of the...
Speaker Change: information that's been out there that the wafer, there will be some modifications that will include the wafer in terms of the domestic content calculation.
Speaker Change: Therefore, in order to qualify, you would need a U.S. wafer in order to get the value of the cell, which then means that the module points...
Speaker Change: conceptually will be worth more, at least the value that we contribute because we're fully vertically integrated, which gives us an opportunity to optimize the blend between a domestic and international mix of products.
Speaker Change: So yes, I think as I look across 2025-2026, we're in good shape. We still have to evaluate how things evolve in 2027, but at least our initial take right now is if India market will be more resilient by 2027, we'll pull some of that demand out of the U.S. market, but the portion that is targeted to the U.S. market, our current view is that we'd be able to consume that entire demand that we see for 2027.
Speaker Change: Yeah, as it relates to cure, so we said on a call that there are about 0.7 billion of adjusters, most of which are relevant to...
Speaker Change: 2026-27-28. We also said that Curio, we're going to launch lead line at the end of this year, will produce just under half a gigawatt of product.
Speaker Change: and it is here in Q1.
Speaker Change: And then we will go and do field performance testing around that product. And then Cure will launch again towards the end of 2025 in phase two. So that middle period, we're doing the field testing, but also that's a period where we wouldn't see significant upside associated with the Cure product, hence going back to producing a current product. And then the aim there is to have Cure produced across
Speaker Change: not just the Ohio plant at the back end of 25, but moving across the fleet in time to start capturing the upside from those contractual revenue adjusters going into 2026.
Speaker Change: And our final question today will come from Andrew Percoco, Morgan Stanley.
Andrew Percoco: Great, thanks so much for taking the question. I guess I want to come back to the guidance for volume sold for the year. It sounds like a majority of the reduction was a result of
Andrew Percoco: U.S.-based project delays influencing that guidance. Can you maybe just talk a little bit more about what you're seeing from customers in terms of their requests for delays? Is the duration getting extended? I think you guys have historically talked about getting requests in a several-week time frame for delays. Are you seeing things get pushed six months to a year, just given the uncertainty of the election? I'm just hoping to get more context in terms of what you're seeing from customers on the project delay side. Thank you.
Speaker Change: Yeah, I'll start. Maybe Mark will add his color. So on the guide, the low end of the guide before was 15.6 and we said on the last call that we expect it to be towards the low end of the guide given
Speaker Change: the termination that we had in Q2. We brought the midpoint of the guide down now to 14.4, so it's a 1.2 reduction.
Speaker Change: just under a gigawatt. That is related to India and as we said on the call...
Speaker Change: A large piece of that has to do with where pricing is in India today, and at the same time, we see the opportunity to bring that volume into the US at much better ASPs. So you've got a challenging market in India right now, but at the same time, given the domestic content guidance, we can bring that in and actually see a significant margin uplift associated with that.
Speaker Change: The challenge, though, is that we have to produce cracker products. So we have some products in in the Dorian India, that fixed-till product which will be sold into the India market.
Speaker Change: Mark made the comment that it only takes a few days to turn the factory over into producing the tracker product, but now producing that, putting it on a boat, getting it into the U.S., getting it sold. You're not going to see that sold volume hitting this year, which is why that guide came down.
Speaker Change: other product, non-India product, we largely managed to mitigate the risks that we've seen throughout the year, so we had the plug power termination, that was about a naught point...
Speaker Change: 4 gigawatt impact and actually we're only down 0.3 on non-India volumes. So we managed to mitigate even a piece of that and almost everything else. Now we are shipping some products into warehouses to Mark's comment earlier, I think we said the same in the prepared remarks.
Speaker Change: in some cases.
Speaker Change: If customers are not ready or if their project is not ready, we are electing to do that as we can under our contract.
Speaker Change: because we have commitments we've made for the year. But I would say in general, we have seen a little bit more in terms of a few more requests to move product. And some of that request has been incrementally longer than before. And generally, we are trying to work with our customers where we can, but we're also sticking to contracts where we need to and enforcing the ability to ship. So I would say there's a little bit more in the U.S. I think there's a little bit around interconnection and project delays.
Speaker Change: Financing be an issue in U.S. projects? It's mostly around other development items. As I said, we've largely been able to mitigate that, either through shipping to warehouses or through reallocation.
Speaker Change: And ladies and gentlemen, that does conclude our final question today. That also does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.