Q1 2025 First Solar Inc Earnings Call
Good afternoon, everyone and welcome to first solar is first quarter 'twenty 25 earnings call. This call is being webcast live on the investors section of first of all Theres website, and Investor Dot first solar Dot com.
Speaker Change: All participants are in a listen only mode and please note that today's call is being recorded I would now like to turn the conference over to your host Byron Jeffers head of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining us on today's earnings call. Joining me today are Chief Executive Officer, Mark Widmar, now Chief Financial Officer, Alex Bradley.
Speaker Change: During this call we will review our financial performance for the quarter and discuss our business outlook for 2025.
Speaker Change: Following our remarks, we will open the call for questions.
Speaker Change: Before we begin please note that some statements made today are forward looking and involve risks and uncertainties that could cause actual results to differ materially from management's current expectations.
Speaker Change: We undertake no obligation to update these statements due to new information or future events.
Speaker Change: For a discussion of factors that could cause these results to differ materially. Please refer to today's earnings press release and our most recent annual report on Form 10-K as supplemented by our other filings with the SEC.
Speaker Change: Including our most recent Form 10-Q.
Speaker Change: You can find these documents on our website at Investor Doc first solar Dot com.
Speaker Change: With that I am pleased to turn the call over to our CEO Mark Widmar Mark.
Mark Widmar: Good afternoon, and thank you for joining us today, beginning on slide three I will share some key highlights from Q1 2025.
Mark Widmar: Commercial perspective since the previous earnings call. We have secured net bookings of six gigawatt at a base ASP 35 cents per watt, excluding adjustors and India domestic sales.
Mark Widmar: As a result, our contracted backlog today stands at 66 three gigawatts.
Mark Widmar: In Q1, we recorded $2 nine Gigawatts of module sales, which is in line with what we forecasted on the previous earnings call.
Mark Widmar: Our Q1 earnings per diluted share came in below the low end of our guidance range at $1 95 per share primarily due to a greater portion of our Q1 sales.
Mark Widmar: Being forecast would be an international versus U S product.
Alex: Alex will provide further details regarding our financial results later in the call.
Alex: From a manufacturing perspective, we produced 4.0 Gigawatts in Q1 comprised of two Gigawatts of series six and two Gigawatts of series seven modules.
Alex: We completed a limited commercial production roundup modules employing our cure technology from our lead line in Ohio during the quarter and continued to deploy these modules in both commercial and field test sites.
Alex: Initial data indicates the enhanced energy profile expected from the superior temperature response, and improved <unk> of our core technology is being realized.
Alex: Furthermore, the laboratory accelerated life testing is confirming the industry, leading annual degradation rate.
Alex: Our domestic capacity expansion has advanced during the quarter as we continue the ramp up of our Alabama factory.
Alex: At our Louisiana facility construction of the building was completed and equipment installation and commissioning is fully underway.
The facility remains on track to begin commercial operation in the second half of this year and once ramped is expected to increase our U S nameplate manufacturing capacity to over 15 excuse me over 14 Gigawatts by 2026.
Alex: Turning to slide four I would like to focus on recent policy and trade developments with.
Alex: We continue to experience significant near term uncertainty from the budget reconciliation process and its potential impact on the inflation reduction Act clean energy tax credits and.
Alex: And now from the evolving trade landscape as the administration implement its new tariff initiatives.
Alex: However, despite these near term challenges, we believe on balance the political and trade environment continues to be an overall long term favorable from a first solar perspective.
Alex: While the implementation of certain new trade policies.
Alex: Was a possibility with the change in administration, the new tariff regime and poses.
Alex: Earlier. This month has introduced significant challenges to 2025, they were not known at the start of the year.
Alex: I will focus on outlining the operational challenges that tariff poses for first solar.
Alex: Alex will later discuss the detailed implications to our full year guidance.
Alex: We have elected to update our guidance range with an upper and that assumes that current applicable 10% universal tariff structure remains in place throughout the year.
Alex: Lower end assumes both the range of non tariff related risks to our operations as well as implications from the previously announced but temporarily suspended country specific reciprocal tariff structure.
Alex: We currently operate international manufacturing in India to serve both the India and U S market and in Malaysia, and Vietnam, which almost exclusively serve the U S market.
Alex: The President's implementation of reciprocal tariffs earlier, this month with rates of 26%, 24% and 46% applicable to India, Malaysia, and Vietnam, respectively.
Alex: It's a significant economic headwind for our manufacturing facilities in these countries selling into the U S market.
Alex: While the subsequent 90 day pause to the effectiveness of these tariffs and the application of a 10% universal tariff partially mitigates the impact the lower rate would still result in a meaningful adverse gross margin impact to sales into the United States absent the duty being fully pass through to the module buyer.
Alex: In addition, the uncertainty surrounding whether the reciprocal tariffs will be reinstituted. After 90. After this 90 day pause or whether the pause will be indefinite or whether a different tariff regime will be put in place has created a challenge to quantifying the precise tariff rate that would be applied to our model.
Alex: It'll shipments into and beyond the second half of this year.
Alex: Our sales contract for international volume shipped to the United States. Typically include provisions that are intended to mitigate the adverse gross margin impact from changes in law due to the implementation of tariffs on modules.
Alex: These provisions, which may be invoked at first solar has discretion.
Come in a variety of types, including some where first solar may terminate the contract if it chooses not to absorb the new tariffs.
Alex: Either the customers required to absorb or first solar and the customers required to share up to a certain amount of the tariff before either party may terminate.
Alex: Others, which represent the majority of these contracts.
Alex: Or a negotiated period as contractually required for first solar and the customer to discuss the allocation of tariff risks before either party may terminate.
Alex: To the extent the contract is terminated on the basis of these provisions the agreement would effectively unwind.
Alex: With needs of the customer nor first solar being responsible for termination payment <unk>.
Alex: Resulting in a corresponding reduction to our backlog.
Alex: As well as a return to the customer of any related deposits.
Alex: These provisions are intended to protect for solar in the event of changes in law related to tariffs that pose significant economic risk to us and that could otherwise force for solar to transact at a loss.
Alex: With respect to our overall backlog of $66 one gigawatts as of March 31, 2025, we have approximately $13 nine gigawatts of forward contracts for delivery of international product into the United States.
Speaker Change: After accounting for the remaining volumes sold in 2025 at the low end of our revised guidance range that Alex will later discuss that remains a forecasted year end net 12 gigawatts of international product in the backlog that may be terminated based on these tariff related provisions.
Speaker Change: With an ASP below the backlog average and after accounting for lower production cost, but significantly higher sales rate, including port related costs warehousing and storage associated with the international product. The profitability of this portion of our backlog is below the overall backlog average.
Speaker Change: Is this.
Speaker Change: This first solar elects to absorb the tariffs cost beyond its contractual obligation no termination right exist and the volume will remain in the backlog.
Speaker Change: Furthermore, with respect to our module contracts for delivery of product from our U S facilities module tariffs are not applicable and therefore is not impacted to our contracted backlog with respect to this volume.
Speaker Change: Yes.
Speaker Change: From an allocation standpoint, our ability to optimize our U S production with our international production to support our customers' qualifications of the domestic content ITC bonus may be constrained under the new tariff regime.
Speaker Change: As we may not be able in a position to utilize our currently available international production capacity absent customers' willingness to absorb or meaningfully share the increased tariff exposure.
Speaker Change: Our customers willingness to bear some or all of the tariff costs beyond this module contracted obligation must be considered in the contents of the overall project related cost increases from the new tariffs.
Speaker Change: Really not just with respect to the modules, but also tracker inverters transformers and other imported equipment.
Speaker Change: Given the majority of the best components with some dependency on Chinese supply chain.
Solar plus storage projects in particular may face significantly increased costs.
Speaker Change: Given these headwinds we expect to pivot our India facility away from exports to the U S and towards producing more products for the domestic India market.
Speaker Change: With regards to the impact of new tariffs on our Malaysia, and Vietnam factories, we will continue to evaluate best options to optimize production across the sites and a potentially reduced U S demand environment for non domestic product, but are mindful that we may need to further reduce our idle production.
Speaker Change: At one or both of these locations, especially if the announced for cyclical tariffs are put in place.
Speaker Change: That said.
Speaker Change: Despite these near term challenges presented by the new tariff regime, we believe the long term outlook for solar demand, particularly in our core U S market remains strong in the first solar remains well positioned to serve this demand.
Speaker Change: This belief is based on our unique profile of first solar compared to its peers.
Speaker Change: We're the only U S headquarter PV manufacturer of scale.
Speaker Change: And by the end of this year.
Speaker Change: We will be the only one with a fully vertically integrated U S solar manufacturing presence across three states, including a large domestic supply chain not just in Ohio, Alabama and Louisiana.
Speaker Change: But across states, such as Wyoming, Utah, Indiana, Illinois, Michigan, and Pennsylvania among others.
Speaker Change: As we've mentioned before by year end, our U S presence alone is projected to support over 30000 direct indirect and a juice jobs across the country.
Speaker Change: Presenting almost $2 $8 billion in annual payroll.
Our powerful contribution to the U S economy is due to our differentiated proprietary thin film technology, but it's also dependent in part on a level playing field given the unfair and illegal trading practices of so many in the Chinese crystal and silicon supply chain.
Speaker Change: As we've engaged with political leaders over the course of the year and as recent developments have demonstrated we believe there is recognition of our politicians policymakers and other authorities of the need to address these unfair practices.
Speaker Change: As well as the criticality of maintaining an industrial policy that allows high value solar manufacturing to grow and thrive in the United States and contributes to our energy and National security.
Speaker Change: One example of this recognition as.
Speaker Change: As the recent final determination results and the CVD case known as solar three.
Speaker Change: Addressing illegal dumping and subsidization by the Chinese headquartered companies operating in Cambodia, Malaysia, Thailand and Vietnam.
Speaker Change: Last week, the Commerce Department.
Speaker Change: Announced.
Speaker Change: Generally substantial 80 CVD duties across all four of the southeast Asian countries.
Speaker Change: Which are generally retroactive and stacked on top of the existing section 301 tariff regime, and the 10% Universal tariff rate currently being applied.
Speaker Change: This results reflect what we have now.
The unfair practice by Chinese headquartered solar companies.
Speaker Change: But American manufacturers and American jobs at risk.
Speaker Change: And as the enforcement of the rule of law is essential to securing our manufacturing base and our domestic energy security.
Speaker Change: That said, while we were pleased with the results of solar three.
Speaker Change: And applaud the professionalism and the tireless work of the Commerce Department.
Speaker Change: Also were well aware that the Chinese are shifting production to lower tariff regions in order to take advantage of our trade laws.
Speaker Change: Trade data published since our previous earnings call further demonstrates a surge.
Speaker Change: <unk> of imported cells and modules from certain countries.
Speaker Change: <unk> lost in Indonesia, when compared to the same period a year.
Speaker Change: We have no doubt that these Chinese manufacturers are also seeking to establish production in other regions around the world such as Saudi Arabia.
Speaker Change: Forcing us into a continued game of whack a mole.
Speaker Change: The American Alliance of solar manufacturing trade Committee of which we are a member continues to monitor this data.
Speaker Change: And as noted on our previous earnings call I'll trade remedy options remain on the table include.
Speaker Change: Including initiating a new anti dumping and countervailing duty case directed towards those countries, where the data is supportive.
Speaker Change: Yeah.
Speaker Change: Well, it's time consuming and resource intensive first solar will continue to engage in trade actions as long as is necessary to support a level playing field and ensure compliance with existing trade laws.
Speaker Change: And we will not hesitate to pursue a critical circumstances determination that if imposed any new tariffs are retroactive.
In addition, we together with Likeminded allies and advocates in Washington across numerous industries not just solar continue to encourage legislation such as the level leveling the playing field act to point out.
Speaker Change: Which would combat repeat offenders by making it easier for petitioners to bring new cases.
Speaker Change: Where production moves to another country in an effort to date tariffs.
Speaker Change: That's a level playing field is a key aspect of the Chinese unfair practices playbook.
Speaker Change: This legislation, which was reintroduced at the end of February of this year.
Speaker Change: And which was bipartisan wood.
Speaker Change: But also go a long way towards strengthening and monetize and U S trade remedy laws.
Speaker Change: And ensuring that remaining effective tools to fight against unfair trade practices and protect Americans.
Speaker Change: Turning to industrial policy.
Speaker Change: The outcome of the budget reconciliation process will determine the fate of critical supply chain initiatives, such as the 45 X advanced manufacturing tax credit and demand side incentives such as the investment in production tax credit or ITC and PTC as we continue to engage with the administration and members of Congress on <unk>.
Speaker Change: Trade and industrial policies. We are encouraged by the response, we are receiving on our message.
Speaker Change: Specifically, we continue to advocate for maintaining these key tax policies, particularly with modifications such as the foreign entity of concern or Fiat provision.
Speaker Change: Which would prevent Chinese companies from receiving U S taxpayer dollars.
Speaker Change: We also continue to advocate for strengthening the domestic content provision to make ITC and PTC eligible contingent on the use of high value domestic.
Speaker Change: Domestic content.
Speaker Change: <unk> produced in the America.
Speaker Change: We believe these modifications to clean energy tax credits would provide significant U S government budgetary savings support the administration's efforts to make the tax cuts and jobs Act permanent.
Speaker Change: And would represent major steps.
Speaker Change: <unk> towards mitigating the risk of America's energy supply chain being contracted.
Speaker Change: It's concentrated in adversary foreign countries.
Speaker Change: Yeah.
Speaker Change: We are pleased to see a growing number of Republican policymakers in both the house and the Senate recognize the value of preserving existing tax credits such as buybacks and the ITC and PTC.
Speaker Change: We recognize that these incentives help in their words spur new manufacturing investment and ensure certainty for businesses that have already made meaningful U S investments.
Speaker Change: They also recognize that doing so would reduce utility bills for American consumers.
Speaker Change: The imperative of affordable reliable electricity for American households, and small businesses is top of mind not just for politicians.
Speaker Change: But for leaders of American utilities as well.
Speaker Change: Recent analysis released by the National Electrical manufacturing Association projected U S electricity demand will grow 50% by 2054, 2% annually with.
Speaker Change: With data center energy consumption growing by 300% over the next 10 years.
Speaker Change: In our recent discussions with several Ceos of some of the nation's leading utilities.
Speaker Change: These leaders recognize the reality of the near term significant growth in the U S energy demand.
Speaker Change: Sure our view that solar has a critical place in all of the above power generation strategy.
Speaker Change: We're a diversified portfolio of natural gas nuclear hydro solar with energy storage and other technologies work together to power our nation to prosperity.
Speaker Change: They have shared with us that they are lending their influential voice to continue to advocate for maintaining clean energy tax credits and the transferability provisions associated with them.
Speaker Change: As doing so will enable greater solar generation deployment.
Speaker Change: More quickly in a lower cost than traditional forms of generation.
Speaker Change: To help address the immediate power generation needs and help mitigate potentially rising ratepayer electricity costs.
Speaker Change: There is plenty of evidence supporting the case for solar as a prominent component of it.
Speaker Change: That's just the generation mix, Texas, Florida, North Carolina and Nevada.
Speaker Change: Markets, where some of the country's highest level of utility scale solar deployment has consumer electricity bills that were between 8% and 24% lower than the national average in January of 2025.
Speaker Change: While the new tariff regime has introduced a new source of uncertainty in near term product development pipeline timelines. We believe that it is unlikely to significantly impact U S load growth fundamentals.
Speaker Change: As the country's top grid operators testified during our March hearing by the house energy and Commerce Subcommittee on energy.
Speaker Change: Still an urgent need to not just maintain but to add capacity to meet significant demand growth.
Speaker Change: Erika leadership.
Speaker Change: Crypto currency in <unk> manufacturing needs of London cost competitive electricity generation.
Speaker Change: Asset new generation capacity coming online there risk not being enough electricity to power the strategically important industries too.
Speaker Change: To their full potential before the current administration ends.
Speaker Change: With 92% of the U S interconnection queue being comprised of renewables solar is the fastest form of new generation.
Speaker Change: The current ITC, and PTC regime, which together with domestic content bonus.
Speaker Change: Drives competitive solar PPA pricing.
Speaker Change: And first solar with is uniquely vertically integrated U S manufacturing process that critically features of domestically produced cell supported largely by domestic value chain remains.
Speaker Change: It remains in our view the vendor of choice to enable the development.
Speaker Change: Development partners to qualify for domestic content bonus, especially with the annually escalating domestic content points requirement.
Speaker Change: Continued policy uncertainty, including with the new announced universal and reciprocal tariffs.
Speaker Change: May result in delays to some announced domestic wafer and cell manufacturing.
Speaker Change: Given the multi year lead time required to build and commission new factories the.
Speaker Change: The uncertain environment as first solar the ability to leverage another one of our competitive differentiators delivering on our commitments to our customers.
Speaker Change: This differentiation is particularly valued by sophisticated developers seeking to secure module pricing and delivery certainty early in their project timelines.
Speaker Change: Through long dated module sale contract.
Speaker Change: We believe first solar has established U S manufacturing presence provides greater certainty of delivery and pricing when compared to other prospects and speculative sourcing sources of supply.
Speaker Change: Furthermore, given first solar profile as a U S company any future domestic capacity expansion will be unencumbered by the prospects of fee Act legislation a concept based on discussions in Washington D. C and elsewhere has been favorably received by certain members of the administration and Congress and we.
Speaker Change: Please must be factored into capital commitment decisions lately, the large majority of our perspective domestic competitors.
Speaker Change: This consideration is for particularly predominant in the industry.
Speaker Change: Where are these competitors are overwhelmingly Chinese owned or controlled.
Speaker Change: Another factor, which may further prevent manufacturers and financing parties from having the clarity necessary to make capital and investment decisions is the fact that public reporting indicates that the reconciliation process and therefore, the fate of existing clean energy tax credits under the inflation reduction Act may.
Speaker Change: Not be known until late 2025, or perhaps not until some point in 2026, particularly if a scenario where.
Speaker Change: Addressing tax policy is delayed to a second reconciliation bill.
Speaker Change: The impact is compounded when you further consider the fact that the section 45 ex manufacturing tax credit begin to phase out at the end of the decade, reducing the windows of availability for these credits for factories that are not operating.
Speaker Change: Yeah.
Speaker Change: Our industry, leading established U S presence provides further competitive advantages under the current tariff environment.
Speaker Change: Over the past several years, we have invested heavily in a largely domestic supply chain.
Speaker Change: Particularly as it relates to high value aspects of our bill of materials, such as glass and steel.
Speaker Change: Where we have entered into long term contracts with domestic suppliers as our.
Speaker Change: Our estimation.
Speaker Change: That any new.
Speaker Change: Crystal and silicon competition.
Speaker Change: We'll likely have to import significant aspects of their bill of materials to support U S production.
Speaker Change: Particularly with respect to patent glass, which currently does not have any domestic source of supply and aluminum, which is domestically supply constrained and priced at a significant premium to imports.
Speaker Change: And a rational market. These bom cost increases would be expected to drive higher pricing for domestically produced competitive products.
Speaker Change: In summary, while we are facing on anticipated near term challenges.
Speaker Change: Following the imposition of the April tariff regime, we remain confident in the long term prospects for first solar.
Speaker Change: In terms of the U S solar energy demand and <unk> ability to leverage its unique profile and competitive differentiation to serve this demand.
Speaker Change: Through this confidence we must be tethered to the continued.
Speaker Change: Enforcement and strengthening of the U S trade laws and supportive of industrial policy, given the irrational and illegal Chinese trade practices. This confidence is based on our profile as America's largest and most established domestic solar module manufacturer.
Speaker Change: It's only fully vertically integrated producer our significant network of domestic supply chain vendors are proprietary CAD Tel based semiconductor that is not beholden to the Chinese crystalline silicon industry and.
Speaker Change: And our ability to enable prospects aspects of the administration's platform of re shoring American manufacturing and supporting the powering of the next generation of critical industries.
Alex: I'll now turn the call over to Alex who will discuss shipments bookings Q1 financials and guidance.
Alex: Thanks, Mark beginning on slide five as of December 31, 2020 for our contracted backlog totaled $68 five gigawatt with an aggregate value of 25 billion.
Approximately $29 nine per watt.
Alex: Q1, we recognized sales of $2 nine gigawatts contracted an additional <unk> five gigawatts of net bookings result.
Alex: Once again, a quarter and contracted backlog of $66, one gigawatts with an aggregate value of $19 8 billion or approximately <unk> 30 per watt.
Alex: Since the end of the first quarter, we've entered into an additional <unk> two gigawatts of contracts, increasing our total backlog to 66 three gigawatts.
Alex: All of this total backlog as Mark previously mentioned $13 nine gigawatts as of today and forecasted 12 Gigawatts by year end 2025 on our contracts containing provisions that if invoked by first solar at its discretion serves a circuit breaker for meaningful gross margin erosion and a tariff regime scenarios such as was announced earlier this month.
Alex: Sure.
Alex: Given that we're only in the initial stages of engagement with our customers on any tariff related impacts to these contracts all of these agreements remain in place and are included within our backlog end of today's call.
Alex: Substantial portion of our overall backlog includes the potential to increase the base AFP through the application of justice contingent upon achieving milestones within our current technology roadmap by the expected delivery dates of the product.
Speaker Change: At the end of the first quarter, we had approximately 32 five gigawatts of contracted volume with ease of Justice.
Speaker Change: If fully realized could generate additional revenue up to approximately <unk> 6 billion or about <unk> <unk> per watt with the majority of this revenue expected to be recognized between 2026 and 2028.
Speaker Change: Contracted volume associated with these adjustments to reduced approximately four six gigawatts since the previous earnings call.
Speaker Change: Approximately half of this is due to adjust is being confirmed with the associated change to the contracted backlog.
Speaker Change: The remainder has been removed as a function of the expiry of contractual notification periods as well as unexpected delay in the timing of kiln conversion in Vietnam, following the new tariff announcements.
Speaker Change: This figure does not account for potential adjustments that applies the total contracted backlog, including potential changes to the ASP.
Speaker Change: Just on the specific module been delivered to the customer as.
Speaker Change: As well as fluctuations in sales freight costs, where applicable aluminium and steel commodity prices.
Speaker Change: As reflected on slide six a total pipeline of potential bookings remained strong with bookings opportunities of 81, Gigawatts an increase of approximately $4 seven gigawatts since the previous quarter.
Our mid to late stage bookings opportunities have increased by approximately $2 six gigawatt.
Speaker Change: Seven gigawatts to $23, seven gigawatts, including $17 3 million, what's in North America, and six one gigawatts in India.
Speaker Change: The increase in the mid to late stage bookings opportunities, primarily driven by increased demand in India from the <unk> segment. The government funded initiative to add solar to distribution feeders supplying power agricultural pumps.
Speaker Change: Launched in 2022, the scheme aims to add approximately 30 gigawatts of solar capacity by March 2026.
Speaker Change: Recently, several Indian states are allocated substantial capacities to developers under this initiative.
Speaker Change: Our climate to use modules with India may itself allows first solar locally manufactured series seven modules to qualify for deployment in the scheme.
Speaker Change: Our mid to late stage pipeline includes three eight gigawatts of opportunities that are contracted subject to conditions precedent.
Speaker Change: <unk> signed contracts in India will not be recognized as bookings until we've received full security against the offtake.
Speaker Change: Beginning on slide seven I will cover our financial results for the first quarter we had.
Speaker Change: Two nine Gigawatts of module sales in Q1 of which 175 Gigawatts was domestically produced U S volume.
Speaker Change: This resulted in net sales of <unk> 8 billion, reflecting <unk> 7 billion decrease from the previous quarter.
The decrease in net sales was due to an anticipated seasonal reduction in the volume of module sold during Q1.
Speaker Change: Gross margin was 41% in the fourth first quarter up from 37% in the prior quarter.
Speaker Change: This increase was primarily driven by higher mix of module selling from our U S factories, which qualify the section 45 ex tax credits as well as the difference in IRI credit valuation between periods, partially offset by higher module production cost a domestic U S module volume.
Speaker Change: Despite the quarter over quarter increase of Q1 gross margin fell below our forecast, although we met our guidance shipment and revenue numbers are mix of USB module sold.
Speaker Change: <unk> 250 megawatts less than expected at the midpoint of our guidance.
Speaker Change: With a corresponding reduction of IRS section, putting up ex credit recognized.
Speaker Change: Approximately half the shortfall was driven by both lower than anticipated U S production in Q1.
Speaker Change: What is the timing of sale of co products from a limited production line was completed in Q1, which is now forecast to sell in the second quarter.
Speaker Change: The remainder resulted from shipping challenges in the final weeks of the quarter.
Speaker Change: We continue to work through both the impact of module shipment schedules from our previously discussed and resolved.
Speaker Change: <unk> manufacturing issues as well as typical early year seasonality approximately 70% of our volume sold in the quarter was recognized as revenue in March.
Speaker Change: We did not incur any additional warranty charges from the sale of series seven modules affected by manufacturing issues.
Speaker Change: As of Q1 quarter, and we continue to hold approximately <unk> seven gigawatts of potentially impacted through seven modules in inventory.
Speaker Change: In addition, during the quarter, we began reaching agreements in principle on final resolution to some potentially impacted series seven modules from our initial production run consistent within our current warranty reserve.
Speaker Change: Furthermore, as additional update an independent analysis and review of the root cause corrective actions and implementation plan for the manufacturing issues in our initial series in production that's been completed.
Speaker Change: Some of the results of the independent review review has been shared with customers and financing parties.
Speaker Change: Yes.
Speaker Change: SG&A R&D and production startup expenses totaled $123 million in the first quarter, reflecting an increase of approximately $12 million compared to the fourth quarter.
Speaker Change: This increase was primarily due to a higher reserve potential credit losses as a function of an increased accounts receivable balance as well as increased production startup expenses for the ramp up of our Louisiana facility.
Speaker Change: Our first quarter operating income was $221 million, which includes depreciation and amortization and accretion of $126 million ramp.
Speaker Change: Ramping up the utilization cost of $20 million production startup expenses of 18 million share based compensation expense of $3 million.
Speaker Change: Nonoperating income netted to an expense of $4 million in Q1, which was favorable relative to the fourth quarter by approximately $6 million.
Speaker Change: This increase was primarily driven by higher interest income from past due payments on accounts receivable from customers.
Speaker Change: We recorded tax expense of $8 million in the first quarter compared to $53 million in the fourth quarter.
Speaker Change: This decrease in tax expense is primarily due to a favorable jurisdictional mix and lower pre tax income in the current period.
Speaker Change: Additionally, there were higher as a state taxes and the comparative periods. The jurisdictions that do not adhere to the federal tax provisions of the IRI regarding the tax exemption of section putting my next credit sales.
Speaker Change: Combination of the aforementioned items led to first quarter earnings per diluted share $1 95.
Speaker Change: Next turn to slide eight to discuss select balance sheet items and summary cash flow information.
Speaker Change: Total balance of cash cash equivalents restricted cash restricted cash equivalents in marketable securities was <unk> dollars 9 billion at the end of Q1, reflecting a decrease of <unk> 9 billion from year end.
Speaker Change: The first quarter saw a decrease in our cash balance the company by an increase in accounts receivable and inventory accounts compared to year end 2020 for.
Speaker Change: The change was driven by several anticipated factors.
Speaker Change: Firstly, our 'twenty to 'twenty five shipment profile because it is back ended revenue profile assumes continuous production throughout the year to meet our contracted commitments. This profile results may transitory working capital imbalance, leading to an increase in our finished goods inventory and warehousing costs, thereby creating near term headwinds to our gross cash.
Speaker Change: Pending any potential impact international production as a function of the new tariff regime, which I'll discuss shortly in the guidance section. We expect this trend to continue in the near term, but anticipate will reverse once our shipments increased in the second half of the year, reducing our inventory build.
Speaker Change: Secondly, we've seen an increase in our overdue accounts receivable balance of approximately $350 million as of quarter end.
Within this is approximately $70 million you from one eight gigawatts of terminations, primarily due to defaults in 2024, we have not received the entitled termination payment and are continuing to pursue litigation arbitration to enforce a full termination payment rights under their respective contracts.
Speaker Change: In addition, a negotiated settlement of the customer following a payment default to deferred approximately $100 million of payments until Q4 of this year.
This deferred payment is fully backed by surety bond and carried interest that is accretive to the year. Nevertheless creates an additional near term liquidity and balance.
Speaker Change: We've also seen a recent increase in <unk> as a function of ongoing discussions with customers related to the initial series seven manufacturing issues last year.
Capital expenditures totaled 206 million in the first quarter. This expenditures primarily related to our newest facility in Louisiana, which is projected to enter startup in Q3 of 2025 and to ramp production through the second half of this year.
Speaker Change: Accordingly, our net cash position decreased by approximately <unk> 8 billion to <unk> 4 billion as a result of the aforementioned factors.
Speaker Change: Okay.
Speaker Change: Before discussing our updated financial outlook I'd like to comment on the challenges facing us as it relates to providing operational and financial guidance and our current policy and trade environment, particularly.
Speaker Change: Particularly with the imposition of the new Universal and reciprocal tariffs early this month.
Speaker Change: Please turn to slide nine.
Speaker Change: When we provided our initial full year 2025 guidance on our earnings call in February of this year, we provided context, including related to risks in two key areas.
Speaker Change: Firstly, the risk the policy uncertainty in Europe, India, and the United States, especially in the U S with regards to tariffs and the ongoing budget reconciliation process and its potential impacts on the IRI.
Speaker Change: And secondly are imbalanced supply demand position, we're excluding India, we have accumulatively oversold through 2026, but with an undisclosed position in 2025 for our series six Malaysia and Vietnam production.
Speaker Change: And in large part by 2024 contract terminations the module delivery shift rights in 2025 utilized by customers facing project delays and policy uncertainty.
Speaker Change: Policy uncertainty relating to the budget reconciliation process on the IRI remains.
Speaker Change: Policy impact and uncertainty relating to tariffs has increased significantly.
Speaker Change: The recently announced tariff directly and adversely impacts of solar in multiple areas, including by increasing capital expenditure costs for a new U S factories.
Speaker Change: Increasing use factory production costs, adding.
Speaker Change: Adding significant cost import finished goods to the U S from our Malaysia, Vietnam, and India facilities and.
Speaker Change: And therefore potentially driving reduced international factory production, which leads to increased underutilization expenses.
Speaker Change: They also indirectly increase risk and volatility for first solar through their impacts to our customers.
Speaker Change: Increased project cost and project financing and construction delays, which may in turn caused shipment timing delays at first solar delays and timing of cash receipts <unk>, new sales opportunities for us in the near term.
Speaker Change: We've elected to update our financial guidance with ranges based on expected impacts from the new tariff regime.
Speaker Change: For the upper end of our range, we assume the impacts from the tariff policy in place as of today's call remaining through at least the end of 2025 include.
Speaker Change: Including the 10% Universal tariff rate the suspension of individual country reciprocal tariff rates on all countries, except China.
Speaker Change: Higher tariff rates applicable to certain products from China.
Speaker Change: Certain tariff exclusions for specific HTS imports codes.
Speaker Change: Section 230, twos tariffs on steel and aluminium imports and section 301 fees on Chinese built vessels.
Speaker Change: The lower end of our range assumes the above with the addition of including the impact from the assumption that was typical tariffs take effect as of July nine, namely.
Namely, 26%, 24% and 46% applicable to India, Malaysia, and Vietnam, respectively.
Speaker Change: Tariff of cost sharing provisions across our contracts with both customers and suppliers very.
Speaker Change: And while currently reflected in our guide we will continue to engage with both to assess tariff exposure allocation and ultimate cost and other related impact.
Speaker Change: Certain other potential indirect unknown costs related to these tariffs, including but not limited to cost associated with any restructuring or asset impairment are excluded from our guidance provided today.
Speaker Change: Getting the volume sold a forecast for nine 5% to nine eight gigawatts of sold volume manufactured in the United States remains unchanged.
Speaker Change: Internationally as it relates to series six our previous guidance included an assumption of approximately <unk> seven gigawatts of combined Malaysia, and Vietnam product forecast of book and Bill within the year.
Speaker Change: Given the tariff related uncertainty associated with a solar projects overall capex and the challenges of the booking new volume in the current unsettled policy climate, our updated guidance to move this volume from both the high and low end of the range.
Speaker Change: In addition, both the high and low end of our guidance range assume a reduction in capacity utilization and throughput at our Malaysia, and Vietnam factories, beginning in Q2 to align with anticipated reduced demand for these potentially highly tariff modules.
Speaker Change: The low end of our range includes an assumption of partial or full idling of these plants continuing through year end.
Speaker Change: We continue to evaluate how best to optimize production across these sites and a potentially significantly reduced demand environment internationally produced product.
Speaker Change: Through ongoing dialogue with customers.
Speaker Change: Temporary idling of production despite the near term underutilization cost impact approximately 40% of which are noncash provides us with optionality as we await further updates to the tariff regime as it relates to Malaysia, and Vietnam as well as the outcome of the budget reconciliation process and any impact to the IRI.
Speaker Change: So it relates to international series seven we previously forecast approximately two gigawatts of the $3 to $3 two gigawatts of India production in 2025 being sold into the U S market.
Speaker Change: Our revised forecast assumes total production in India is unchanged, but the reallocation of approximately half of this two gigawatts back the domestic India market in the second half of the year to avoid expected tariff impact.
Speaker Change: This resulted in increased domestic India book and Bill dependency for the year from approximately $4 seven Gigawatts previously to approximately one five gigawatts and our current guidance.
Speaker Change: Combined we now forecast full year module sales of $15 5 million to $19 three gigawatts.
Speaker Change: Combined impact of these volume and ASP changes is approximately $100 million to $375 million.
Speaker Change: In terms of import duties on finished goods, we forecast approximately 19% to $70 million of tariff expense on module imports.
Speaker Change: So relates to production costs the impact of the previously announced section 232 tariffs on aluminium and steel imports into the U S at a rate of 25%.
Speaker Change: Even our previous guidance range.
Speaker Change: With the newly announced tariff regime, we forecast a total of 2025 tariff impact on raw material imports of approximately 25% to 55 million primarily related to element and frame the substrate loss imports as we continue to ramp available domestic glass supply.
Speaker Change: Our forecast of fleet average sales rate warehousing ramp on the utilization supply chain LDS and other period costs has increased by approximately $65 million to $270 million, primarily as a result of underutilization charges from running the Malaysia, and Vietnam factories at lower than full production capacity and the associated impact from under absorption.
Speaker Change: Fixed costs, which are accounted for as period expenses.
Speaker Change: In addition, we expect small incremental freight and logistics charges as a function of accelerating imports had the reciprocal tariff effective date of July nine.
Speaker Change: As well as due to expected 301 tonnage fees on Chinese build vessels beginning in Q4 of this year.
Speaker Change: I will now cover the full year 2025 guidance ranges on slide 10.
Speaker Change: Our net sales guidance is between four five and $5 5 billion, which includes an unchanged range of U S manufactured volume sold.
Speaker Change: The high end of the range, we assume a reduction of $300 million from the removal of <unk> seven Gigawatts of International series six volume sold.
Speaker Change: As well as the lower Asps associated with approximately <unk> eight Gigawatts of India produced series seven volume moving from being sold in the U S market back to being sold in the India domestic market.
Speaker Change: At the lower end, we assume an additional reduction in international volume sold as a function of the reinstatement of reciprocal tariffs.
Speaker Change: Gross margin is expected to be between $1 96, and $2 47 billion or approximately 44%, which includes $1 65 to $1 7 billion. The section 40 by next tax credits at <unk> $95 million to $220 million of ramp and Underutilization cost.
Okay.
Speaker Change: SG&A expense is expected to total $180 million to $190 million in R&D expense is expected totaled $230 million to $250 million.
Speaker Change: SG&A and R&D combined expense expected totaled $410 million to $440 million and total operating expenses, which include $60 million to $70 million production startup expense.
Speaker Change: <unk> to be between 470 $510 million.
Speaker Change: Operating income is expected to be between $1 45, and 2 billion, implying an operating margin of approximately 35% does.
Speaker Change: Is inclusive of $155 million to $290 million of volume ramp and utilization costs.
Speaker Change: Startup expense.
Speaker Change: 165 to $1 $7 billion of section 45 X credits.
Speaker Change: This results in a full year 2025 earnings per diluted share guidance range of $12 50 to $17 50.
Speaker Change: In summary, the upper end of our EPS guidance range is reduced by $2 50 per diluted share, which includes approximately $1 per share of direct tariff cost impact approximately $1 per share of indirect tariff impact volume sold in Asps.
Speaker Change: Approximately <unk> 50 per share of indirect tariff impact increasing on the utilization and logistics costs.
Speaker Change: The EPS guidance range from high to low of $5 per diluted share driven by our volume sold impact of approximately $3 per share and incrementally underutilization costs of approximately $2 per share.
Speaker Change: From an earnings cadence perspective, we anticipate module sales of $3 to $3 nine gigawatts for the second quarter.
Speaker Change: $310 million to $350 million infection 40 IMAX credits.
Speaker Change: Unexpected earnings per diluted share between $2 and $3.
Speaker Change: Capital expenditures in 2025 are expected to range from one to $1 5 billion, including $25 million to $50 million of tariff impact.
Speaker Change: Our year end 2025, net cash balance is anticipated to be between $4 9 billion.
Speaker Change: As a reminder, our net cash guidance does not account for the sale of our 2025 section 45 credits, but as in prior years, we will continue to evaluate options and valuations for potential earlier monetization.
Speaker Change: Turning to slide 11, I'll summarize the key messages from today's call.
Speaker Change: Q1 earnings per diluted share came in below the low end of our guidance range of $1 95 per share.
Speaker Change: Morally due to a change versus forecast and the mix of U S versus international products sold within the quarter.
Speaker Change: Our forecast for U S produced volumes sold remains unchanged for the year.
Speaker Change: In the near term policy uncertainty, especially relating to the newly announced tariff regime has introduced significant challenges to the year, we're not known at the start of the year.
Speaker Change: We've updated our guidance to reflect a range of universal to reciprocal tariff impacts known as of today for.
Speaker Change: For the full year 2025, we're forecasting earnings per diluted share of $12 50 to $17 50.
Speaker Change: And the longer term, we remain confident in the long term prospects both U S solar energy generation demand broadly and for first solar specifically through leveraging our unique profile and competitive differentiators, including fully vertically integrated manufacturing domestic supply chain and manufacturing base and our proprietary kaetzel based semiconductor technology.
Speaker Change: And with that we conclude our remarks and open the poll for questions operator.
Speaker Change: Thank you Sir and just to reminder, everyone. It is star one if you have a question today, we will take the first question from Philip Shen Roth Capital partners.
Speaker Change: Okay.
Hi, everyone. Thanks for taking my questions I have.
Speaker Change: Few categories here.
Speaker Change: First one on the outlook for bookings in Q1, you guys did 600 megawatts since the Q4 call at 35 cents of what since the tariffs what has the conversations been like with customers have you been able to do.
Speaker Change: We're generally bookings.
Speaker Change: Where have things slowed down because of the tariffs.
Speaker Change: Number two.
Speaker Change: This topic is the recent underperformance of the modules can you just share a little bit more.
Speaker Change: <unk>.
Speaker Change: What's going on here you talked in the prepared remarks.
Speaker Change: <unk>.
Speaker Change: Third party reports.
Speaker Change: On the production line fixes can you share a little bit more about the details and thus far you've been focused on the series seven issues.
Speaker Change: But in our checks some customers are flagging some underperformance of series six so can you help frame that.
Speaker Change: And quantify.
Speaker Change: Series, six issues as well and compare and contrast with series seven.
Speaker Change: And then finally.
Speaker Change: When do you expect customers to start taking more smooth delivery again because.
Speaker Change: Recall from the last.
Speaker Change: Earnings call, you have a new $200 million to $300 million warehousing expense and so I was wondering because your manufacturing linearly. When do you think that kind of resolved do you think it's more 26 and we.
Speaker Change: You should expect.
Speaker Change: Maybe.
Speaker Change: Maybe not resolved in 'twenty five thanks, guys.
Speaker Change: Okay Phil.
Speaker Change: Look I guess on the bookings side and then the impact since the tariffs.
Speaker Change: Clearly there has been.
More momentum in.
Speaker Change: And customers reaching out.
Speaker Change: Even some that we've done some amount of business with in the past, but haven't necessarily so meaningful volume to over the last couple of years.
Speaker Change: Again, there's two events that have happened one is the solar three outcome.
Speaker Change: The other is the universal tariffs and potential implications that theyre going to have as well as looking across the horizon what are the.
Speaker Change: The reciprocal tariffs look like and I think everybody is trying to figure out how do they get through this horizon and tried to de risk as much as I can from tariff exposure. So first solar obviously, you've given are domestic.
Speaker Change: Capacity is kind of a partner of choice when it comes to that so clearly activities picked up a question we still.
Speaker Change: Have to debate discusses what do we think is the.
Speaker Change: Appropriate.
Speaker Change: Market asps for that opportunity.
Speaker Change: And really we don't know until we understand to what extent there is any potential impact or changes because of the budget reconciliation on IRI.
Speaker Change: If <unk>.
Speaker Change: <unk> has implemented and theres less domestic supply as an example, if.
Speaker Change: <unk> change.
Speaker Change: Change or eliminated that impacts things at the PTC ITC has changed or it includes the domestic content requirement in order to qualify it changes. So we're still of a position to be very patient.
Speaker Change: In that regard.
Speaker Change: And given how strong our bookings have been for our domestic volume it's not like we have a lot of resiliency either there so to the extent customers are wanting to engage for near term opportunities.
Speaker Change: Really difficult to have a.
Speaker Change: Meeting of the mind, there because it would be more or less looking at the international production and prior to bring that into the U S. And then Theres a whole day of debate that starts on what or how are we going to deal with tariffs who's taking the risk and everything else right. So clearly strong momentum, but we're also trying to be very patient because it's not clear yet to what is the pricing dynamic going to look like.
Speaker Change: For domestic modules over the next several years until all the dust settles and Theres still a lot that will happen over the next several quarters as.
Speaker Change: As it relates to.
Speaker Change: Series seven.
Speaker Change: Comment around the performance.
Speaker Change: And what we said in the prepared remarks that you know.
Speaker Change: We have completed as we indicated we would the third Party report third Party report.
Speaker Change: <unk>.
Speaker Change: Okay.
Speaker Change: Validated that the root causes were identified appropriately in the appropriate corrective actions have been implemented into our production process effective back last year. When we indicated the changes have been made and that information has been shared with customers who have made inquiries is being shared with with <unk>.
Speaker Change: E <unk> and banks, and others, who who need that type of information.
Speaker Change: As it relates to.
Speaker Change: We also said in the prepared remarks that we have reached it we're effectively in the <unk>.
Speaker Change: Final documentation of our settlement agreement with one of our customers that was impacted by the initial production loss for series seven and we're in the process of finalizing that agreement with them. There is another customer as well that we're in the final stages of.
Speaker Change: So that's good news for US we are starting to see the settlement starting to occur.
Speaker Change: It is helpful right, because we want to get as much of this behind us as quickly as possible.
Speaker Change: Your comment about around 7%.
Speaker Change: Our S. Excuse my comment the same thing I said last quarter. When you. When you asked the question, we will always stand behind our product to the fullest extent that's required under our warranty obligation.
Speaker Change: Obligation that we mutually agreed to with our customers at the time that we ship the product it starts with the requirement of sending us the modules and we will test the models appropriately under the requirements that are consistent with the IAC standards that both parties have agreed to and to the extent those modules are below warranty thresholds.
Speaker Change: <unk> measurement are two other things then we will honor the obligations to replace the module. So it's as simple as that I know you're continuing to ask this question, but from my standpoint.
Speaker Change: We will always be there behind our product and our technology and if there are issues that our customers are experienced in the field.
Speaker Change: Therefore, they are fully aware of the requirements and to the extent they provide the modules will test an appropriately and if there is a need to remediate will remediate accordingly.
Speaker Change: As it relates to.
Speaker Change: Customer.
Speaker Change: Deliveries and.
Speaker Change: The cadence and the speed.
Speaker Change: I would say is that.
Speaker Change: It's really also directly associated with uncertainty and since the last earnings call. The uncertainty has clearly gotten worse.
Speaker Change: With the implication at the project level and as you know Phil.
Speaker Change: Impact on on.
Speaker Change: Batteries in particular with the terrorists or most of the sales are coming from battery sales are coming from from China, and the rate of which those tariffs are being applied make those.
Speaker Change: Projects potentially.
Speaker Change: Uneconomical, so as it relates to our customers, having better line of sight and certainty and execution.
Speaker Change: It's only gotten worse.
Speaker Change: I would not expect a meaningful delta.
Speaker Change: In terms of sell through or timing of velocity of shipments to our customers because of that level of uncertainty.
Speaker Change: We'll see we'll see how it continues to play out, but that's what's happening right now.
Speaker Change: Our next question is Andrew <unk> from Morgan Stanley.
Andrew: Thanks for taking the question.
Speaker Change: I wanted to pick up kind of where you left off there.
Speaker Change: A little surprising is to see the level of volume downside in the guidance. This quarter, obviously understanding that there was going to be some any margin headwinds just given your international presence, but the volume piece of it is I guess, a little bit surprising here. So just curious can you provide any more details around the conversations youre, having with your customers.
Speaker Change: Mostly because of the battery storage supply chain or are there other kind of factors here and contributing to that and I guess as a follow on question how much of the remaining volumes that you are delivering this year expected to come from your U S facilities versus international I guess is the way.
Speaker Change: Test test the risk there and then my last question is just around.
Alex: Alex you mentioned working capital.
Alex: Headwinds in the first half of the year have you changed your strategy or thought process around tax credit transfer timing or potential need for third party capital just given.
Alex: The uncertain environment that you guys are operating in thank you.
Speaker Change: Yes, I'll take the first one then I'll, let Alex do the mix of shipments.
Speaker Change: Our guide on international versus.
Speaker Change: Domestic and then obviously you can talk about.
Speaker Change: Thoughts on working capital headwinds strategy associated with that.
Speaker Change: <unk>.
Speaker Change: Let me maybe you want to step back and reflect so what are we what are we done in terms of our guide and I would start off with that our guide is very much reflective of realization of tariffs are real and they are consequences.
Speaker Change: And we are in an environment where.
Speaker Change: We run our factories $24 seven to $3 65.
Speaker Change: And I have to be mindful.
Speaker Change: <unk> basically what has been communicated right now what I'm being told is that there will be a 10% universal tariff in place up until July nine.
Speaker Change: Point in time, the country specific reciprocal rates would be reestablished and when you look at the impact of those rates.
Speaker Change: Using Vietnam as an example, a 46%.
Speaker Change: It becomes uneconomical to ship a product.
Speaker Change: With a 46% tariffs into the U S and you're able to sell it to an end customer and our contracts with our customers are structured in such a way that.
Speaker Change: The vast majority of them.
Speaker Change: There is a tariff revision there, which is largely to protect us from a downside standpoint, right. It's basically to say, we're not worried that risk, but neither is our customer and.
Speaker Change: So we have to negotiate once the impact of the tariffs have been determined we have to negotiate that rate.
Speaker Change: And determining if there is an alignment of sharing or who pays for what or if neither party can.
Speaker Change: The parties can't agree too.
Speaker Change: Negotiation of sharing that tariff and the parties have the right to terminate.
Speaker Change: And so we've reflected that in our guidance. The high end assumes that the 10% rate is going to carry itself through the end of the year and there is an impact to us but from a volume standpoint, Theres about 700 megawatts that came out of our prior guide and that was just the open book and Bill.
Speaker Change: Volume that we had so we had some international volume that we actually we're getting pretty good traction on over the last.
Speaker Change: Couple of my first couple of months of the year and then the terrorists came in like nobody wants to go into that discussion because nobu.
Speaker Change: Nobody knows for certain what the rates are going to be and what risk, they're going to wear and neither one of us want to align to our commitment to that volume knowing at the reciprocal rates go back up for Malaysia, and Vietnam that.
Speaker Change: It becomes uneconomical. So so we took that volume out of the high end. So that's what happened there right. The low end of the range assumes that we have the reciprocal excuse me the universal tariff until July 9th and then the country specific reciprocal rates go up so once you get into that environment.
Speaker Change: Basically we're not shipping manufacturing anything in the second half of the year in Malaysia, Vietnam and selling into the U S. So it's really it's not necessarily a reflection of underlying demand from customers. It's a reflection of the fundamental economics and the headwinds that we would have to deal with now having said that that's our guide.
Speaker Change: We have not engaged yet meaningfully with customers around the impact of tariffs some conversations that I've had with customers at this point in time for example.
Speaker Change: 26, and I've told them that its probable with the current proposed.
Speaker Change: Reciprocals country specific rates that I will not be manufacturing in Malaysia, and Vietnam at those rates to where to be imposed and they're very concerned by that because now they have volumes there depending on for next year that they may not have models that they can build the projects again, so I can't tell you for certainty what the outcome of these tariff conversations.
Speaker Change: We're going to be we've chosen to say, let's let's assume that the fundamental analysis first solar is not going to be able to carry a meaningful portion of those tariff rates, which.
Speaker Change: It would be call. It 10 10.
Speaker Change: And.
Speaker Change: In.
Speaker Change: Vietnam in five to six.
Speaker Change: Tariff impact in Malaysia, we just arent going to be able to absorb that it doesn't make fundamentally it makes sense to do that that we could get to a better outcome with our customers. We could also see a better outcome with revised rates on those country specific rates don't know that's also why we've chosen to just idled facilities in the second half.
Speaker Change: The year to understand what happens with potential change to the current country specific rates.
Speaker Change: So to understand what happens with the provision is underneath the IRA that can be very impactful to how we would view that international volume of potentially bringing it in or potentially doing a finishing line in the U S. There's a lot of strategies that we can do once we understand the policy environment in the tariff environment that we're going to be in but I don't know any of that right.
Speaker Change: Now so our guide is taking the limited information that we have applied in that and it does reflect.
Speaker Change: A meaningful reduction to volume in the low end for sure top end, it's relatively small 700 megawatts, which the open book and build a position that we had bottom and yes. There is a meaningful changes because our view with the reciprocal country specific tariffs it becomes uneconomical to manufacturer in Malaysia, Vietnam and ship into the U S. I'll, let Alex take the other.
Speaker Change: Yes, so just on the volume piece the U S volume U S. Manufactured volume sold is unchanged. So thats nine five to nine eight gigawatt same as it was at the last call. The total India volumes sold remains the same three to about four gigawatts three to $3 nine was.
Speaker Change: What's changed there is the assumption that more of that will now be sold in the India domestic market versus being shipped from India to the U S and sold into the U S market. The total volume sold is unchanged. So the big change is around the southeast Asia production in Malaysia, Vietnam as Mark said at the top end of the range. We're assuming 700 megawatts comes out and Thats the book and Bill requirement.
Speaker Change: For the year at the lower end, we're assuming three five gigawatts comes out in total so an incremental $1 eight on top of that 700 and again as Mark mentioned, that's really a function of.
Speaker Change: The implication of those tariffs to the cost structure before we've yet engaged with customers around.
Speaker Change: Paris absorption on their behalf.
Speaker Change: That's the volume piece and on the cash side. So we brought the cash guide down by 300 million the top at the bottom and we brought that range of capex to be wide us had previously.
Speaker Change: One three to one 5% at one to one 5%. This is a reflection of again, if we are in the lower end scenario of the guidance here were going to ratchet back capex spend a little bit.
Speaker Change: The cash numbers are lower than they had been historically.
Speaker Change: Managing higher inventory and AR balances and I would like at the moment.
Speaker Change: Our forecast to reverse out in the second half of the year again, assuming we continue to sell through in this area as we place today and we don't have other shocks to the system such as we saw with the tariff implications.
Speaker Change: Implications, but remember these are.
Speaker Change: Nonetheless gross numbers on a gross basis that guide would be nine to $1 $4 million to $500 million higher.
Speaker Change: You asked about the credits.
Speaker Change: We have not sold our 2025 credits and we've said before we'll continue to engage with the market. If we get a discount that I think is appropriate for the for the evaluation for US that we can then buy sell those credits of cash come in quickly put that cash in the bank or in interest income on that such that I'm effectively economically neutral to holding those Craig.
Speaker Change: And going forward Accountability, then we will look at potential sales. We also said before I think it's a pinhole risks.
Speaker Change: In an IRA risk environment, having sold those credits and received cash even though we would still badly ultimate risk around.
Speaker Change: Any refusal to honor those credits by the IRS, we will be in a better position with a cash payment cyber defense versus on the side of the government waiting for.
Speaker Change: A payment to come through so the credit fulfill that we've generated $300 million in Q1 and about another 300 forecast in Q2 that leaves about $1 billion of credit generation in the second half of the year and then we also have.
Speaker Change: Tapped revolver. So we got $1 billion of available capacity. We have used this previously to manage jurisdictional cash it is easier to move money back from the international regions to the U S than it was prior to the 2017 tax reform, but it still doesn't come without some constraints on costs. So if we need to manage their fictional cash that's something we can draw on in the near term as well.
Speaker Change: The next question is Kashi Harrison Piper Sandler.
Speaker Change: Okay.
Speaker Change: Good afternoon, and thank you for taking the questions.
Speaker Change: So if we find ourselves in a situation, where the final tariffs from Malaysia, Vietnam, or 30% versus 20% versus 10%.
Speaker Change: Can you help us think about what you do with those assets.
Speaker Change: Is there the ability to bring some of that equipment to the U S for more U S manufacturing and then maybe how can we think about the deposits.
Speaker Change: Kurt.
Speaker Change: Our on your balance sheet that relate to the.
Speaker Change: 12, or so gigawatts that you outlined in the prepared remarks. Thank you.
Speaker Change: Alright, I'll, let Alex take the deposit question in terms of the cash is theres a lot that we can do with those those assets in and.
Speaker Change: It's a matter of understanding the environment of which we can optimize against right. So look.
Speaker Change: Yeah.
Speaker Change: So like I said there is a couple.
Speaker Change: A couple of three key provisions included in the IRA that we're very obviously interested in wanting to see what happens with one is the foreign entity of concern and what the implications are of that.
Speaker Change: That could meaningfully adversely impact.
Speaker Change: The ability of Chinese owned and controlled companies to operate here in the us meaningfully.
Speaker Change: Change the domestic supply chain right. So that's important.
Speaker Change: The other is what happens with the 45 X and.
Speaker Change: Yes.
Speaker Change: Is it does it stay as currently envisioned does it change there's lots of ways. It could change it could change to the point of redistributing value to move some of the value of the 17th more upstream to minimize the value just on the module Assembly, which therefore creates opportunity for a more robust.
Speaker Change: Valuation allocation towards technology.
Speaker Change: <unk>.
Speaker Change: The requirement of a domestic content ITC PTC that could change as well.
Speaker Change: And what that means once we know that we can say well how are we going to optimize these assets right and there is one path as you mentioned could be bringing them into the us redeploy them, maybe a more efficient and easier to market strategy could be is to do front end processing in Malaysia, Vietnam and backend finishing in.
Speaker Change: In the U S and therefore, what I'm, bringing my module and are my components.
Speaker Change: Declared value of my component, maybe it's 50% of the value of the module, therefore, I'm, taking the impact of the tariff and cutting it in half.
Speaker Change: And I could put finishing line for example on the on the West Coast, where I don't have in operation today.
Speaker Change: I can bring.
Speaker Change: Into the U S more economically because shipping into the west coast is cheaper than it is shipping to the east coast and I don't have a presence here today right and if there's still some value of the 45 acts now I got a 45 X value because I'm doing finishing here in the U S. As well so theres lots of things that we can do and also when you when you do.
Speaker Change: Semi finished product you actually can reduce your sales rate because youre getting more sheets of glass into a container because you don't have a frame an injunction box and all that kind of stuff right. So there's a lot that we can do that.
Speaker Change: Can optimize.
Speaker Change: Those assets and obviously the talented associates that we have in those facilities, but I don't know the strategy yet until I know what becomes enduring post budget reconciliation. So once we know that we know what game, we have to play and we know what levers that we're going to go after but where we sit today, there's a lot of uncertainty.
Speaker Change: Cash on the deposit so.
Speaker Change: Said by year end, we will have about 12 gigawatts in the backlog that has these tariff provisions could be theoretically at risk.
Speaker Change: If you look at that at somewhere in the region of $3 billion of revenue and if you look at the average deposit we have in the backlog is $1 9 billion against the numbers that we showed.
Speaker Change: About 10%. So in theory, you got about 300 million that could be at risk a couple of things to comment on one is we have yet to engage with many customers as Marc mentioned earlier, especially those of projects in the near term I think many customers are going to want this product. They don't want to cancel that trying to work through and find ways to make this tariff situation works for them the secondary.
Speaker Change: Although a near term constrained with domestic product.
Contracts further out and we have the ability to supply domestic contract those can always be flipped.
Speaker Change: If we wish to do so.
Brian Lee: And our next question comes from Brian Lee Goldman Sachs.
Brian Lee: Hey, good afternoon, thanks for taking the questions I had two.
Brian Lee: A lot's been covered here, but I guess on the guidance just wanted to understand kind of the strategy here.
At the high end, Alex Mark You mentioned, one eight gigawatts from Southeast Asia Theres still included even with the 10% Universal tariff so.
Speaker Change: Yes is the approach you are just taking lower margin there for this year or are you actually planning to pass some of those costs on and that's why you're keeping it into 'twenty and beyond.
Speaker Change: The high end of the guide and then just curious as it relates to I guess 26 volumes for Malaysia, Vietnam, It's 10% tariffs remain light.
Speaker Change: Is the plan to adjust contracts or is it just going to be a lower margin.
Speaker Change: Volume basis for you and then the second question for you I'm, just kind of a follow up to the earlier question around module, finishing capacity I think you had mentioned Mike.
Speaker Change: You already assuming some volumes for.
Speaker Change: Excess finishing capacity in <unk> coming from Vietnam, and Malaysia could you remind us what that is for this year and then kind of the gating factors policy, but what.
Speaker Change: What's sort of the timeline and cost to maybe match up finishing capacity in the U S with the southeast Asia capacity. If that's what you ended up deciding to do thanks guys.
Speaker Change: This is Brian on the guidance. So the strategy. We've taken is on the high end, we're assuming 10% tariffs in that right now the numbers that youre seeing or assuming that those will be able for us in our financials now that isn't going to be our approach and strategy with customers are coming out and have discussions that represented the numbers that way for now until we are going to have those discussions.
Speaker Change: We do have some inventory that is in the U S. Prior to the tariff announcements we have some that was on the water that will come in ahead of us.
<unk>.
Speaker Change: That business given that there is a window to get product in and something that was already made and therefore it is worth bringing in here at the 10% rate versus holding it in Malaysia, Vietnam pending uncertainty in the future. So we will have some product and he will go and have discussions with customers around.
Mark Widmar: The tax implications of that as it relates to 2026 I think it's too early to say, what we would do as Mark commented. There's a lot of optionality that we have around those plants. Once we understand what the rest of the policy environment looks like.
Mark Widmar: But right now there's just too much uncertainty to make a call.
Mark Widmar: Yes, and I would say just Brian as it relates to the yes, we are doing some of it this year.
Mark Widmar: Most of it two thirds of it has already happened.
Mark Widmar: And so we don't have a lot yet currently in the second half, but we are evaluating.
Mark Widmar: Potentially expanding it depending on how the conversations with customers go.
Mark Widmar: And if we get good clarity around the need for the volume.
Mark Widmar: We would look to bring more of that into the U S is a semi finished product and then finish it here in the U S. And then obviously pillar.
Mark Widmar: Obviously better economics, so that's something where we're looking at but again were somewhat constrained in doing that just because of what capacity. We have but there is still a reasonable amount of volume we can bring in yet contingent upon demand from customers.
Mark Widmar: In terms of getting that finishing line up and running it's somewhat contingent to the.
Mark Widmar: Having a building so let's assume we find the building and then for finishing line, it's not as challenging or complex of a specification as a as a fall in production.
Mark Widmar: Production facility for us.
Mark Widmar: And then you've got obviously.
Mark Widmar: Move the tools.
Mark Widmar: Probably within call. It nine to 12 months, if everything goes well from the time of making a decision.
Mark Widmar: It's a matter of the timing of when youre willing to lean into that decision.
Mark Widmar: It's going to be contingent upon that reconciliation process and how quickly it gets done.
Mark Widmar: That's going to be the gating factor.
Mark Widmar: Depending on what your scenarios on that that could be late Q3 or into Q4.
Mark Widmar: Okay.
Speaker Change: Everyone. Our final question today comes from Julien Dumoulin Smith Jefferies.
Mark Widmar: Okay.
Speaker Change: Hey, good afternoon. Thank you very much for the time I appreciate it.
Mark Widmar: Thanks for covering so much.
Speaker Change: Just following up a little bit on the 12 Gigawatts guys. You just relative to the 66 gigawatt backlog you were talking about how do you think about the repricing risk on the balance sheet I just wanted to kind of go back and make sure that we firmly heard you with respect to tariff contract re openers or other card change of law considerations here.
Speaker Change: If you take the 66 minus 12 as you think about the.
Speaker Change: Any other permutations, whether it's tariff 80, CVD or frankly, just changing how youre supplying the mix of U S versus foreign how you think about re strike we're repricing under these contracts.
Speaker Change: The 12, Gigawatts identified here and even within the 12 Gigawatts that you can speak a little bit more if you do the finishing lines is that a de facto holding your commitment and contract terms such that they arent reevaluated or is that.
Speaker Change: The 12 gigawatt decision tree here effectively.
Speaker Change: Okay.
Speaker Change: Is the 12 gigawatts effectively.
Speaker Change: Good decision tree on the finishing line effectively going to be done in partner partnership with your contract your customers.
Speaker Change: Yes, so as it relates to the remaining.
Speaker Change: 54, gigawatts or so.
Speaker Change: Volume.
Speaker Change: There is no repricing risk on that either.
Speaker Change: Essentially all domestic product for the U S. There may be a little bit in there for India, and India, mainly falls through as a contract is subject to CP, because we don't book it until until we have the security. So if there is any amount of Indian there's de minimis. So it's really for all domestic product that will be delivered over the next several years.
Speaker Change: We increased our capacity up to 2014, Gigawatts, So theres no theres no real repricing risk on the balance.
Speaker Change: The 12 Gigawatts.
Speaker Change: Is it will be at 100% tied to the conversations that we have with customers.
Speaker Change: And as I indicated is the one example, I was talking with a customer for delivery in 2026.
Speaker Change: As I told him I said look.
Speaker Change: As of right now if the reciprocal tariffs were to be put in place I will not have product for you and then they immediately.
Speaker Change: Reacted well what do I do that.
Speaker Change: And do you have domestic supply for me and the answer is no.
Speaker Change: I don't and so and I cant get quick capacity that would be able to fill.
Speaker Change: Fill that gap other than finishing line, but I can't make the decision on the finishing line until I have an understanding of what the IRR profile is going to look like right. So.
Speaker Change: What that means is that.
Speaker Change: Assuming there is some flexibility to the country specific rates in Vietnam comes down from 46 to some more manageable number maybe in the 10 to 20 range and then there is probably going to be an outcome with a customer on a portion of that volume.
Speaker Change: That would result in a higher ASP.
Speaker Change: And.
Speaker Change: Inability to annual requirements and deliver the products.
Speaker Change: So that's all the stuff that we've got to work through and I don't have answers to it yet, but I also want to make sure and.
Speaker Change: In our discussions with our customers is that.
Speaker Change: I am more than willing to take a tough call on this that would require us to shut a facility in a situation where the rates are extremely high.
Speaker Change: Because I don't want to walk myself into by keeping that factory open.
Speaker Change: Now your ears.
Speaker Change: We're leveraging against yourself, a negotiation and I don't want to be in that situation. So our position is going to be what we know of right now it's probable that those factories may not continue to operate at the reciprocal tariffs go in place, but we'll know more once we negotiate with customers and how they see it and we'll know more once we know about the IRA and whether and what the options we can use to leverage it.
Speaker Change: That but.
Speaker Change: So a lot of uncertainty as I indicated and.
Speaker Change: Obviously, it's changed significantly from the last earnings call and we're trying to be as transparent here with everyone. So you guys know what we're thinking about.
Speaker Change: Okay everyone.
Speaker Change: Go ahead thank.
Speaker Change: Thank you, Sir and everyone that does conclude today's conference who would like to thank you all for your pocket.