FSLR - NASDAQ

Good afternoon, everyone, and welcome to First Solar's First Quarter 2023 Earnings Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] As a reminder, today's call is being recorded. I would now like to hand the call over to Mr. Richard Romero from First Solar Investor Relations. Mr. Romero, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its first quarter 2023 financial results. A copy of the press release and associated presentation are available on First Solar's website at investor.firstsolar.com. With me today are Mark Widmar, Chief Executive Officer; and Alex Bradley, Chief Financial Officer. Mark will begin by providing a business and strategy update, Alex will then discuss our financial results for the quarter. Following their remarks, we will open the call for questions. Please note this call will include forward-looking statements that involve risks and uncertainties and including risks and uncertainties related to the Inflation Reduction Act of 2022 that could cause actual results to differ materially from management's current expectations. We encourage you to review the safe harbor statements contained in today's press release and presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer. Mark?

Thank you, Richard. Good afternoon, and thank you for joining us today. As we noted on our last earnings call, we entered 2023 and its initially stronger commercial and operational and financial position than the previous year, setting the stage for growth and improved profitability in 2023 and beyond. The first quarter of the year reflects this direction as we commission our latest factory in the United States. It started production of our next-generation Series 7 modules. Secured a manufacturing incentive award in India, progressed our technology road map with a new cell efficiency record and continued our strong bookings and ASP momentum. It’s important to emphasize that our point of differentiation from our unique CadTel technology and vertically-integrated manufacturing process to our commitment to responsible solar, continue to set First Solar apart from the competition and are the primary enablers of our long-term competitiveness. Beginning on Slide 3, I will share some key highlights from the first quarter. This quarter, we strategically built on our backlog with 4.8 gigawatts of net bookings since our last earnings call at an average ASP of $0.318 per watt, excluding adjusters were applicable. This brings our year-to-date net bookings to 12.1 gigawatts. While at the same time, our total pipeline for future bookings opportunities has grown to 113 gigawatts and includes 73 gigawatts of mid- to late-stage opportunities. From a Series 6 manufacturing perspective, we produced 2.36 gigawatts of product in the first quarter, with an average watt per module of 467, a top bin class of 475 watts and a manufacturing yield of 98%. This solid performance is the result of a relentless focus on manufacturing excellence. Regarding Series 7, the ramp at our third Ohio facility, which began production in January is progressing well. We produced 170 megawatts in the quarter and recently both demonstrated high-volume manufacturing production capability of up to 10,000 modules per day, which is approximately 60% of nameplate throughput and achieved a production top bin of 535 watts. Developed in close collaboration with EPCs, structured and component providers, Series 7 reflects First Solar's ethos of competitive differentiation. Responsibly manufactured in America, largely using domestically sourced components, including American made glass and steel, and entirely produced under one roof. It is optimized for the utility scale market and features a large form factor and an innovative new back rail mounting system. This design is expected to deliver improved efficiency, enhanced installation velocity and unmatched lifetime energy performance for utility scale projects. We are tracking to begin customer shipments as early as June of 2023, and towards that goal, we are pleased to have recently received Series 7 IEC and UL product certifications. From a technology perspective, in Q1, we certified a new world record CadTel cell with a conversion efficiency of 22.3%. Most importantly, this was achieved in our CuRe technology platform, which provides a significantly improved energy profile. In addition, we recently received an award from the U.S. Department of Energy related to our tandem module development. Moving to Slide 4. We are pleased with production progress at our manufacturing and R&D facilities expansions. In India at our new Series 7 factory in Chennai, final building and facility works are nearly complete, and the factory has been energized. Tool installation is ongoing, and we received our first incent to operate and expect to begin production and ramping activities during the second quarter -- second half, excuse me, of 2023. Once fully ramped, this facility is expected to add 3.54 gigawatts of annual nameplate manufacturing capacity to the fleet. As previously announced, the India facility has also been allocated financial incentives under the Indian government's production-linked incentive program. First Solar was 1 of only 3 manufacturers selected to receive the full range of incentives, which are reserved for a fully vertically-integrated manufacturing. The incentives are subject to the facility meeting product efficiency and domestic value creation thresholds, which we will evaluate on a quarterly basis beginning in the second quarter of 2026 through 2031. In Ohio, our project to upgrade and expand the annual throughput of our Series 6 factories by an aggregate of 0.70 gigawatts is also advancing. Tools have been ordered and the additional capacity is expected to come online in 2024. In Alabama, our fourth U.S. factory has received its environmental permits and foundation of early factory construction is underway. Tools have been ordered and the facility remains on schedule for completion by the end of 2024, with commercial operations ramping through 2025. When fully operational, these expansions in Ohio and Alabama are expected to increase our annual nameplate capacity in the U.S. to over 10 gigawatts by 2025. Our dedicated R&D facility has also commenced construction and will feature a high-tech pilot manufacturing line, allowing for the production of full-size prototypes of thin film and tandem PV modules, and we'll provide a means to optimize our technology road map with significantly less disruption to our commercial manufacturing lines. This facility is expected to commence operations in 2024. Looking forward, we continue to evaluate the opportunity for further investments in expanding our production capabilities to best serve our key markets. Moving to Slide 5. I would first like to draw your attention to a change in the way we present our contract backlog. In the past, we have shown expected module shipments. Going forward, we will show expected module volumes sold, which takes into account the timing of revenue recognition and aligned with volumes sold in contracts with customers for future sales disclosures represented in the 10-K and 10-Q quarterly fillings. As of December 31, 2022, our contracted backlog totaled 61.4 gigawatts, with an aggregate value of $17.7 billion. Through March 31, 2023, we entered into an additional 9.9 gigawatts of contracts and recognized 1.9 gigawatts of volume sold resulting in a total backlog of 69.4 gigawatts, with an aggregate value sold of $20.4 billion, which implies approximately $0.293 per watt, an increase of approximately $0.005 per watt from the end of the prior quarter. Since the end of the first quarter, we've entered into an additional 2.2 gigawatts of contracts bringing our total year-to-date backlog to a record 71.6 gigawatts. During the first quarter, certain amendments to existing contracts associated with commitments to provide U.S. manufactured product as well as commitments to supply domestically produced Series 7 modules in place of Series 6, increased our contracted revenue backlog by $35 million across 8.8 gigawatts or approximately $0.045 per watt. Since the second quarter of 2022 and up to the end of Q1 2023, cumulative amendments to existing contracts associated with commitments to provide U.S. manufactured product as well as commitments to supply Series 7 versus Series 6 modules, increased our contracted revenue backlog by $157 million across 4.1 gigawatts or approximately $0.039 per watt. Now we are currently processing additional amendments associated with providing U.S. manufactured product, which will be reflected in our Q2 contracted revenue backlog when reported. As we previously addressed, a substantial portion of our overall backlog includes the opportunity to increase the base ASP through our application of adjusters, we're able to realize achievements within our technology road map as of the required timing for delivery of the product. As of the end of the first quarter, we had approximately 34.5 gigawatts of contracted volume with these adjusters, which are fully utilized or realized could result in additional revenue of up to approximately $0.7 billion or approximately $0.02 per watt, the majority of which will be recognized between 2025 and 2027. As previously discussed, this amount does not include potential adjustments for the ultimate bin delivered to the customer, which may adjust ASP under the sales contract upward or downward. In addition, this amount also does not include potential adjustments for increases in sales rate or applicable aluminum or steel commodity price changes. Finally, this does not include potential price adjustments associated with the IT and domestic contract provision under the recently enacted Inflation Reduction Act. As a reminder, not all contracts include every adjuster described here. To the extent that such suggesters are not included in a contract, we believe that baseline ASP reflects in the appropriate risk-reward profile. And while there can be no assurance that we'll realize adjusters in those contracts when they are presented, to the extent that we are successful in doing so, we could expect a meaningful benefit to our current contracted backlog ASP. Our year-to-date contracted backlog extends into 2029. And excluding India, we are now sold out through 2026. Regarding future deliveries. As a reminder, our contracts are structured as firm purchase commitments. In limited circumstances, often related to customer regulatory requirements, or a portion of a large multiyear framework commitments, our contracts may include a termination for convenience provision, which generally requires substantial advanced notice to invoke and features a contractually required termination payment to us. This fee is generally set at a substantial percentage of the contract value and backed up by some form of security. Termination for convenience provisions apply to approximately 1/10 of our entire contracted backlog, with the majority of the applicable megawatts scheduled for deliveries between 2024 and 2025. Should the customer fail to perform under our contract, the ensuing default would in addition to their incurring potential dispute resolution and project financing complications, entitle us to remedies that could include the receipt of the termination that would include the receipt of termination payment. That said, we and our customers, including many of the largest, most respected developers and utilities in the industry, have long taken a relationship base versus transactional approach to contract. As a result, this year alone, we have booked multi-gigawatt deals with peak customers, including EDP renewables, Lightsource BP and Leeward Renewal Energy. We signed a 2-year 2-gigawatt order announced prior to the call, further expanding our long-standing relationship with us. And choosing the contract with First Solar, our customers value and prioritize initially more than just the module ASP, including contract integrity, product availability, uncertainty, ethical and transparent supply chain. For First Solar, this approach provides the opportunity to partner with customers who share our values and also provides greater offtake visibility, which helps support our long-term capacity expansion plans. There's a lot bit of interest, which has been validating the path through multiple pricing and supply demand cycles in this industry, informs and guides our commercial strategy of continuing to enter into long-term multiyear contracts. As reflected in Slide 6, our pipeline of potential bookings remain robust with total bookings opportunities of 112.7 gigawatts, and an increase of approximately 20 gigawatts since the previous call. Our mid- to late-stage opportunity increased by approximately 15 gigawatts to 72.6 gigawatts and includes 65.6 gigawatts in North America, 4 gigawatts in India, 2.7 gigawatts in the EU and 0.3 gigawatts across all other geographies. Included within our mid- to -late-stage pipelines are 4.7 gigawatts of opportunities that are contracts subject to conditions precedent, which included 1.9 gigawatts in India. As a reminder, signed contracts in India will not be recognized as bookings until we have received full security against the offtake. Turning to Slide 7. Our research and development efforts have continued to be the driving force in the enhancement of our technology. In Q1, we established a new world record Research conversion efficiency for CadTel, achieving 22.3% efficiency, as certified by the United States Department of Energy's National Renewable Energy Laboratory. The representing research cell was constructed at our California Technology set. Notably, this new record is based on our CuRe technology, which in addition to increase in efficiency as meaningful lifetime energy improvements in real-world conditions, driven by a superior temperature coefficient, best-in-class cell stability. While maintaining First Solar's industry-leading quality and reliability, our CuRe technology provides or an up to 6% increase in expected lifetime energy relative to our previous record cell technology. Additionally, the U.S. Department of Energy recently provided 2 grants associated with our industry-leading point of differentiation efforts. These include a $7.3 million award to First Solar to support the development of a CadTel tandem module for the residential rooftop segment and a $1.3 million award to the University of Kansas, which is collaborating with First Solar and the Idaho National Laboratory to develop a low-cost next-generation method to optimize solar module recycling. Before turning the call over to Alex, I would like to take a moment to discuss the policy environment in our key markets. In the United States, with respect to the Inflation Reduction Act, we continue to await guidance related to the domestic content bonus provision. We believe it is imperative that the United States Treasury Department issued guidance consistent with the congressional intent of the IRA, which is to nurture true domestic solar manufacturing, ensuring a robust domestic supply chain for American made solar modules. It is critical the guidance recognized that to qualify for the bonus. At a minimum, the manufacturing of solar cells must occur in the United States. This is not only consistent with clear objective of the IRA, but it's also supported by the legal framework under the Buy America Act Regulations expressly referenced by Congress in the Enacto. While the attend of the IRA and regulations governed and are clear, it is unfortunate that sections of the industry are advocating that treasury grant some form of waiver that would allow bonus credits for solar panels assembled using 4 subcomponents, such as solar cells. We believe that any such waiver runs contrary to the letter of the law and congressional intent. The purpose of the bonus credit is to incentivize domestic manufacturing and the creation of a domestic solar supply chain and not to create an entitlement simply to support foreign manufacturers. With regards to international policy, we are seeing some progress in the EU, which has released its new state aid guidelines in the form of the temporary prices and transition framework, and a draft that is net zero law. The stated guidelines create the framework for allowing EU member states under certain conditions to match aid received by clean energy technology manufacturers elsewhere, including under the IRA. The net zero law will establish new ambitions to meet regional needs with domestically produced content, prioritize net zero projects and technologies and address existing issues such as permitting. As previously mentioned, policy, among other considerations continues to influence our evaluation of potential additional manufacturing expansion. Such expansions would require further clarity including in the U.S., satisfactory treasury guidance with respect to domestic content and in Europe, further clarity on EU member states incentives for domestic manufacturing. I'll now turn the call over to Alex, who will discuss our Q1 results.

Thanks, Mark. Turning on Slide 8, I'll cover our financial results for the first quarter. Net sales in the first quarter were $548 million, a decrease of $454 million compared to the fourth quarter. The decrease in net sales was primarily driven by an expected shift in the timing of module sales as we increased shipments to our distribution centers, both to mitigate logistics costs as well as to align future shipments to customers with contractual delivery schedules, along with the completion of sale of our Luz del Norte project in the prior quarter. These decreases were partially offset by an expected increase in module ASPs and certain earn-outs on legacy systems projects. Gross margin was 20% in the first quarter compared to [indiscernible]. This increase was primarily driven by expected benefits from Inflation Reduction Act of $70 million and lower sales rate, partially offset by $19 million of ramp costs of our new Series 7 factory in Ireland. Although logistics costs decreased during the quarter, they continue to remain elevated relative to pre-pandemic levels. During the first quarter, they reduced gross margin by 15 percentage points. As we look to the second half of the year, we expect to see a reduction in logistics costs radical. As further described in our 10-Q and most recent 10-K, Inflation Reduction Act of a certain tax benefits for solar modules and solar module components, manufactured in the United States and sold to third parties. As of components, the benefit is equal to $12 per square meter for a PV wafer, $0.04 per watt for a PV cell and $0.07 per watt for a PV module. Based on the current form factor of our modules, we expect to qualify for a benefit of approximately $0.17 per watt for each module sold. We recognize these benefits of a reduction to cost of sales in the period of modules of sold customers. In the first quarter, 158 megawatts of the U.S. produced volumes sold was produced in 2022 and was not eligible for any of these benefits. SG&A and R&D expenses totaled $75 million in the first quarter, an increase of approximately $1 million compared to the fourth quarter of 2022. Production start-up expense, which is included in operating expenses was $19 million in the first quarter decreased approximately $13 million compared to the fourth quarter, driven by the start of the plant qualification process, a new Series 7 factory in Ohio. Our first quarter operating income was $18 million, which included depreciation and amortization and accretion of $69 million, production start-up expenses of $19 million and share-based compensation expense of $7 million. With regard to other income and expense, our first quarter interest income increased by $8 million due to higher interest rates and cash and time deposits. As a reminder, other income in the fourth quarter included a gain of $30 million in connection with the sale of our Luz del Norte project as far is lenders agreed to give a portion of the outstanding loan balance as part of that transaction. We recorded a tax benefit of $7 million in the first quarter, a tax expense of $1 million in the prior quarter. The increase in tax expense driven by excess tax benefits associated with share-based compensation awards divested during the period, partially offset by higher pretax income. Combination of the aforementioned items led the first quarter diluted earnings per share of $0.40 compared to a fourth quarter net loss per share of $0.07. Next on Slide 9 to discuss select balance sheet items and summary cash flow information. Our cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities ended the quarter at $2.3 billion, and $2.6 billion at the end of the prior quarter. This decrease was primarily driven by capital expenditures associated with our new plants in Ohio, Alabama and India and payments for operating expenses, partially offset by a drawdown in our India credit facility and advanced payments received on future module sales. As relates to advance payments, substantially all our contracts in our backlog at the time of booking we typically require payment security and for cash deposits, bank guarantees, surety bonds, letters of credit or parent guarantees, targeting up to 20% of the contract value. During 2022, as we started contracting further into the future, we generally started requiring a higher percentage of cash deposits. Reflects our consolidated balance sheet as deferred revenue, these deposits totaled approximately $1.3 billion as of quarter end and are providing a significant portion of the financial resources required on their existing expansion efforts. Total debt at the end of the first quarter was $320 million, an increase of $136 million from the fourth quarter as a result of the low drawdown on our credit facility related to the development and construction of a manufacturing facility in India. Our net cash position decreased by approximately $0.4 billion to $2 billion as a result of the aforementioned factors. Cash flow use in operations were $35 million in the first quarter. Capital expenditures were $371 million during the period. Given the recent uncertainty in the banking sector, I would like to note that our investment policy and approach to managing liquidity focused on preservation of investment principle, the media availability of adequate liquidity, followed by return on capital. Continuing this policy, we place our investments for the group of high-quality financial institutions focused on creditworthiness and diversification. We do not have cash invested in regional or super regional banks. And in the quarter, we increased our holding in U.S. treasuries. In addition, we continue to evaluate putting in place our revolving credit facility to support jurisdictional cash management as well as provide short-term optionality. Turn to Slide 9, our full year 2023 guidance is unchanged from previous earnings and guidance call in late February. Let's reiterate from an earnings cadence perspective, as previously noted on our February earnings guidance call, we anticipate our earnings profile will be higher in the second half of the year due to contractual delivery schedules, timing of first sales of our Series 7 products and the timing of recognition of Section 45X benefits, driven by both the timing of volumes sold as well as the inventory lag when a product sold in the early part of 2023 may have been manufactured in 2022. For Series 6, following on the sale of 158 megawatts in Q1 that was not eligible for the Section 45X tax benefit, we have approximately 50 megawatts of U.S. manufactured product remaining in inventory that is not eligible to Section 45X, substantially all of which is expected to be sold in the second quarter. Regards to Series 7, we expect to begin shipping products from our third Perrysburg factory in June, and therefore, expect to its revenue and Section 45X benefit recognition in the second half of the year. From a volume perspective, we expect first half volumes sold including 1.9 gigawatts of sales in Q1, totaled 4.3 to 4.5 gigawatts, flying second half volumes sold of between 7.3 and 8 gigawatts. From a Section 45X perspective, based on the aforementioned factors, we expect to recognize approximately 25% of our full year guidance in the first half of the year and approximately 75% in the second half. As it relates to our longer-term outlook beyond 2023, we plan to hold an Analyst Day in our Ohio campus on September 7, 2023, which will include a live broadcast. So on Slide 10, I'll summarize the key messages from today's call. Demand continues to be robust with 12.1 gigawatts of net bookings year-to-date, driven 4.8 gigawatts of net bookings since our last earnings call, with average ASP of $0.318, leading to a record contracted backlog of 71.6 gigawatts. Our continued focus on manufacturing technology excellence resulted in a record quarterly production of 2.5 gigawatts, and our EMEA, Ohio, Alabama expansions remain on schedule. We also achieved a record cash sale conversion efficiency of 22.3% based on our CuRe technology platform. Financially worth of $0.40 per share, we ended the quarter with a gross cash balance of $2.3 billion or $2 billion net of debt. We are maintaining our 2023 guidance in full, including full earnings diluted share of $7 to $8. With that, we conclude our prepared remarks and open the call for questions. Operator?

[Operator Instructions] We will go to Philip Shen, ROTH MKM.

Last quarter, you talked about how bookings might decelerate. We saw some of that this quarter but the ASPs for the bookings were in line, if not higher, actually, they were higher versus last quarter. How do you expect bookings to trend in Q2? We have some of that data now, but the rest of the quarter, Q3 and Q4? And then how do you expect that bookings ASP also to trend? And now that you're sold out through '26, when do you expect to sell out '27?

Yes. I think from '26 and '27, I think we're something approaching combined those two, we're approaching close to 40% of that current supply plan being sold right now. But obviously, a little bit more of that is in '27 and '28, but I think we'll make good progress on both of those years. I don't really want to commit to a specific date when we would sell out '27 because we'll do '27 the same way that we did with '26. So customers who want '27 volume, we're going to want to tie that into multiple years. So we're going to leverage that as best we can across the balance of decade. So I don't think that's important not quickly we sell that, but it's how we use that '27 volume strategically to create more multiyear agreements and visibility as we go through the balance of the decade. As it relates to bookings, yes, I mean look, we had 60 days basically since the last earnings call, and so you would expect just from that reason always going to trend down. But the underlying demand, which is reflected in our total pipeline as well as our mid- to late-stage pipeline as we indicated in our prepared remarks, has continued to grow. So that's extremely encouraging. We have a number of very large deals with strategic counterparties that we're still working through. And we are successful in closing one or two of those. And in the second quarter, we could see a very strong result for the second quarter, plus if we can close more than a handful of those now through the balance of the year, I can continue to see bookings carrying forward into Q3 into Q4 being reasonably strong. But they indicated that we're longer dated in some of those commitments, so we'll have to see how it plays out. ASP-wise, I mean the great thing about having such a strong position where we are right now, is we can be patient and book deals that make sense. And there are certain counterparties that we've had ongoing conversation with where we just can't get to a point that is agreeable on price. So their expectation relative to where our expectation is that there's a gap. And so we'll continue to see if we can close those gaps. But if not, there's enough opportunity with other partners out there that we think we can continue to get strong ASPs. We have said, I want to make sure clear that as we do book the India volume, we've indicated before that India volume will have a lower ASP but still a very attractive gross margin on a cents per watt basis as well as on a percentage basis plus now that we also have the opportunity for the production-linked incentive, which will carry forward into making those opportunities more accretive if we're able to realize that benefit. So ASP trends will continue to work through them in a very patient manner for the U.S. We're pretty optimistic with where we are right now, and we'll continue to see how the balance of the year plays out. And also, as we indicated, we've more opportunity to look to capture technology adders. We also have the opportunity to capture the domestic content in Series 7 uplifts that are already embedded in our contracts. And I think the team did a great job in the first quarter here, realizing another $35 million of ASP uplift because of that. And as I indicated, we have a number of other deals that we're working through right now and close, which will then be capturing reported in our next quarter call.

Next, we'll take a question from Kashy Harrison, Piper Sandler.

So my question is around your capital allocation strategy. So if we look over the next 10 years or so, it looks like you're positioned to generate, call it, north of $10 billion from the manufacturing credits or pace of what you've been done so far. It seems like it would be pretty questionable political move to use that cash to return capital to shareholders, and there's only so much money you can spend on R&D each year. And so Mark, Alex, when you look at the business over the next decade, assuming treasury guidance comes in line with your expectation, is it a safe assumption that you're going to use that cash to expand manufacturing capacity? And if not, what are you going to do with all that cash?

So look, I think the near-term answer is it's not going to be a problem for us over the next couple of years. If you look at where we are right now, we started this year with $2.6 billion gross, $2.4 billion net. We're planning to end the year from a forecast basis about $1.35 billion, I think at the midpoint so down $1 billion or so. Over that time, you've got $2 billion of CapEx in the guide. So operating cash flow is obviously strong. But I look forward beyond that. Clearly, we've given a view of how we think about cash in the past, right? It's not working capital around the business. That has come down a little bit since we exited the systems business, but at the same time, as we grow the module business you do have increasing working capital. We talked about growth expansion occurred where we'd like to use the money more, and that's the best use of our cash, the highest ROIC at the moment. The project business has gone basically. There is potentially some use around M&A. We've talked in the past, M&A used to be focused around development business and acquiring platforms and projects more likely to be used now on the development side, R&D side, manufacturing side. If we get through all of that and we can't uses for capital, where increase didn't make sense, we would look to return. I think given the cycle that we're in right now, we're going to have significant opportunities to deploy capital to increase manufacturing over the next few years. The other piece I would say is that as we think through needs going forward, you talked a little bit about some of the constraints in the supply chain in the near term. As you're seeing more announcements in the U.S. and as we continue to grow, there may be constraints that we either can choose to all of need to help mitigate in the supply chain, which may necessitate some capital investment across areas that are adjacent to our module manufacturing directly. So there's other areas that may either look to or potentially have to deploy capital in the short term.

Next, you'll hear from Maheep Mandloi, Credit Suisse.

Maybe just on the India PLI. Could you just talk about how to think about from an accounting and cash point of view, is it similar to the U.S. credits? And -- any thoughts of expansion there? And secondly, just on the cadence on sold versus produced. Should we expect a similar cadence between the two as we saw last year through the quarters this year?

Yes. So I think on the PLA, we're still working through how an accounting work. It's a return of capital of about 24%, I believe, against the facility cost that's going to take place over 5 to 6 years. And we'll update you on the accounting as we work through that. I'll leave Mark to talk about the expansion. But if I just look through where we are in terms of your question on production versus sold volume, I think this is something that confusion around some of the analyst reports potentially around timing. We -- from a production perspective, we will be growing production across the year, but it's not significantly backended in 2023. However, from a sold perspective, it is fairly back-ended. We guided to a midpoint of around 12 gigawatts of sold volume this year. We sold 1.9 in Q1. And the remarks just now we said that we're guiding to a first half of 4.3 to 4.5 to the midpoint of 4.4 for the first half of the year, and that leads you to 3.5 gigawatts in the second quarter and then leads to a second half number of about 7.6. So you can see this from a total volume were roughly 1/3, 2/3 weighted first half of the year, the second half of the year. If you think about why that is, it's a function partly of timing of customer demand when customers are requiring shipments. There's also a function of our Series 7 production beginning in Q1 continuing through Q2, but we're not beginning to ship that product until the back end of Q2. And so you're not going to see the timing of revenue recognition to that come into Q3 and Q4. So that's a lot what pushing that sold volume out. And then, of course, you see a similar dynamic in terms of the Inflation Reduction Act recognition, if you look at how that plays out, we said on the call, you're going to see something like quarter of the total revenue recognition from the benefit around the Inflation Reduction Act, Section 45X happening in the first half of the year, the remainder in the back half the year, and that's again a function of timing in U.S. sales from our Series 6. The fact that you've got some inventory lag carryover of Series 6 being sold that was produced in 2022, and therefore, doesn't have credit, and you've seen most of that the first and second quarter about 158 megawatts in Q1 and 50 in Q2. And then the Series 7, where, again, we're producing in the first half of the year, but we're not selling that product until the second half. So you could see the credit timing in the second half of the year as well.

Yes. As relates to the expansion in India, India is obviously a very important market for us and one that we're continuing to look to grow. I think there's a sustainable demand profile there that and if you look at their load expectation and low growth to now at the end of this decade, it could be up towards a 60% increase. And clearly, lowest cost form a new generation to help serve that load growth is going to be renewable solar obviously being the primary one. So a lot of growth, a lot of opportunity, extremely -- our technology is extremely well positioned in India. So India is a very attractive market. As we scale up this factory, we'll continue to assess opportunities for additional investments and further capacity expansion in India. But I would expect us, if things progress as we currently envision between now and the end of the decade, we're going to have more than more factory in India.

Next, we'll take a question from Brian Lee, Goldman Sachs.

Just kind of going back to Phil's question around bookings, ASP trends. You had the $0.308 per watt, if I recall correctly, last reported bookings from a quarter ago and then it's $0.318, so it's up $0.01 quarter-on-quarter. I know there's a lot of moving pieces, but can you give us a bit of color around kind of how you had a $0.01 per watt increase from quarter-to-quarter on bookings? Was it Series 7? Is it more U.S.-made modules? I know you mentioned, Mark, the moving pieces around India potentially bringing that blended number down over time. But just wondering if you could give us some of the moving pieces as to how to think about price trends going forward, given it seems like there's still some levers you're able to pull to get that number higher given the results here. And then just a follow-up on capacity expansion. It seems like you guys have been patient on that front, but any updated thoughts on timing and what maybe some of the gating factors are around announcing more capacity given clearly the demand environment continues to be in your favor and now you're almost sold out through '27.

Yes. As it relates to the bookings and kind of the effect of the ASP sequentially. Actually, there's a pretty good mix when I look across call it, 5 gigawatts largely 4 deals that made up most of that volume 2, I think we announced, 1 was EDPR and the other was Leeward. And one of the things just to be clear on the Leeward is that. And you also noticed that we also have contracts subject to CP bucket in our disclosure, that gets about 4 points -- almost gave us 4.7 or something like that, of which 1.9 of that is India. Not all of that volume from Leeward was actually encountered or booking because there is a provision in there that we could flex it up or flex it down. And what we've done is we've taken a percentage of that volume and is reflected in the contract subject to CP. But I just want to make sure that's clear that not all the 2 gigawatts is actually in the bookings to that 4.8 because a portion of it is in the contract subject CP bucket. And again, it can flex up or flex down. But when I look at those bookings, the -- it's a good mix of international and domestic. It's a good mix of Series 6, U.S. and international. It's a good mix of Series 6 and Series 7. So it was not skewed towards one or the other. I will say that clearly, the ASPs that are represented in there for those different variants will be different. So -- and I said this before, the international volume is generally going to be lower than domestic volume because at the extent we're selling into the U.S. market because of the best content value equation of the domestic ITC bonus. There's also some amount of that volume that went into Europe, which was at a lower ASP. So when I look at it, it's relatively diversified. There's diversity of products, diversity of geography, that blended spill to a very strong result for the quarter, and we're obviously very happy with that. Now it's also lower volume than we've done in the last quarter. And generally, we see much higher volumes and larger agree purchasing power and a multiple-year agreement. You may see ASPs more aggressively into that situation. So I wouldn't attribute the increase to any 1 lever. But what I would say is that we're still very happy with the market and the opportunity and the ASP that we're receiving. As it relates to capacity expansion, look, the -- as we said, the primary engaging factor right now is clarity on policy. And I said it in my prepared remarks, if we -- if the domestic content stays true to the congressional intent of IRA and it truly requires a highly manufacturable component here in the U.S. in order to qualify and the bonus being truly a bonus and not trying to create some form of entitlement, which we believe that should include at least the cell, if not beyond the cell as part of the domestic content requirements to be manufactured here in the U.S. That's going to be a key determining factor in terms of new capacity. I've said before that if there's some reason that, that is not the decision, if it's module assembly only, then we've got to reassess in terms of how do we engage with best serving our primary market here in the U.S., and it may not necessarily be a new factory. It could potentially be a finishing line here in the U.S. because that's what the interpretation is by treasury DOE and White House, that's what they want. They want module assembly. They don't want module manufacturing. If that's their decision, then we'll have to assess that from our own perspective and determine what investments we make. But for me, first and foremost, has to start off with policy, and I'd be very disappointed if that's the direction that they went, I think we have a unique opportunity with IRA here to create an enduring supply chain allows cycles of innovations here in the U.S., allows the U.S. to be a technology leader with solar and other renewable energy. And let's help that's where the outcome is. If they choose to go a different direction and not being strategic in the long term in their thought process and the construct here, then we'll have to evaluate ourselves and determine what's the right deployment of capital.

Our next question is Julien Dumoulin-Smith, Bank of America.

Just moving back to the comments in the prepared remarks about the termination for convenience. Just wanted to follow up. I think you guys said 1/10 of your entire contracted backlog has that with the majority being '24, '25? Can you comment a little bit about what kind of provisions or entitlements are provided for contracts beyond 2025 at present? Any kind of other nuances or other provisions beyond just the convenience piece?

What we said is generally our contracts of fixed price contracts. So generally, that's how they're structured going out now. But we wanted to highlight the termination of the convenience. I think there has been some questions around how strong these contracts are. So we want to make sure it's clear that only 1/10 of our backlog today of roughly 70 gigawatts has termination of convenience provisions. And the majority of those are for the 2024-to-2025-time frame, which I think if you look at where module supply is in that time when you think about timing for which people design plants and finance plant, we think it's relatively low risk that's getting booked. The one I was trying to give you that color as to what was out there. As you go out to further dated contracts, they are -- they've always been, which is firm fixed price contracts with the adjustments that we talked about, so upside downside around bin class, some adjusters around things like aluminum and steel pricing and sales rate adjusters, the general, these viewers' protections or pass-throughs of risks that we feel are pretty mitigated by the customer versus us.

Yes. And then I think we also said is that in some cases, these are regulatory kind of requirements that we have to contract around. These provisions have been in our contracts, and again, on a relatively small percentage of our contracts. Historically, we have not seen customers in both these provisions to the extent they are in a contract. The other thing I would say is that some of these very same contracts that have these provisions were also out there negotiating with customers on domestic content uplift on ASPs. And when those uplifts do happen, there's additional security that has to be posted, which further in my mind, solidifies the commitment from the customer. Also most of our customers view this as a true partnership with First Solar. And they know that if they were to invoke something like that, they would be making a decision to no longer be willing to partner with First Solar. I don't think there's many of our customers today that really want to be that vulnerable given the uncertainty, which could happen at any point in time, right, between geopolitical issues and challenges between the U.S. and China and other implications that could happen that could have an adverse impact on supply chain in the U.S. It's going to be a while before you get a fully vertically integrated U.S. supply chain that would include poly through module assembly. Our customers understand that's what First Solar brings to the equation and they bring certainty and integrity. And I think that will keep most of our partners committed to the long-term relationships and not looking at transactional opportunities.

Ben Kallo from Baird has the next question.

Maybe following on to that first question. Just capacity, Mark, how do you think about it because I think the overcapacity is going to become a bigger worry, at least from our standpoint in Wall Street just because we've seen it before the new announcements. And then my second question is about carbon intensity in your technology and how that benefits you. Specifically, I think I read that creating hydrogen, clean hydrogen will require to get those credits will require solar panels that have this low carbon intensity. So maybe there's a differentiation there.

Yes. I think when you look at the global capacity and the trajectory of oversupply, I think determining what that oversupply is relative to ultimately what the finance going to be. And I think there's all different views around that in terms of how much growth we could see on a global basis as we progress through the end of this decade. And I do think there are some drivers around demand that they aren't fully appreciated such as green hydrogen. But I think you have to then decouple that and say, where is that -- what market is that going to be easily used to address? Like, for example, India, when you look at India and the trade and industrial policies that have been put in place in India largely say it's going to be a domestic market. I mean, to try to engage and support India on an import basis and to pay the tariffs and assuming you can even get to a point where you have the approved to actually sell into India through the approved list of module manufacturers, that's another hurdle and constraint that has to be addressed. So the best way to serve that market is going to be domestically. So when I look at India and say, well, wherever polysilicon capacity is being added, assuming it's not happening in India, it's really irrelevant in terms of the India market. You have a similar dynamic here in the U.S. as well. The polysilicon -- I mean I understand that there's clearly wafer capacity that's being added in Southeast Asia and the cell capacity and to the extent they can get polysilicon supply chains that can enable that capacity, which generally are going to be non-Chinese source, [probably unlock, probably lock] or somebody like that, which also know that they're enough an advantaged situation as it relates to pricing on poly, and help making sure that they hold it firm. So I think there are some additional challenges that ultimately will have to be addressed for that capacity expansion. And in general, when you look at the capacity expansion, where most of the increase is happening, it's not happening, in countries like Southeast Asia, it's mostly within China. As you read through most of the announcements around polysilicon or wafer capacity expansions and all like. So you got to break that up to the term of what's really the supply chain that can address the U.S. market. And look, we know that there'll be incremental capacity, but there's going to be strong demand here in the U.S. market. And our customers understand that as well. And I'll go back to the discussion on hydrogen. When you think about the key enabler of hydrogen as an example, you can't do anything until -- and I'll just use solar as the example. Green hydrogen is going to require some renewable source, let's say, at solar. Until you take photons to make electrons, you have nothing. And so when you look at the solar CapEx relative to the total CapEx of hydrogen and electrolyzers and everything else, it's relatively small. And when you get into the nuances of handful of pennies one way or the other, a lot of these guys that are going to develop these projects, which are multiyear projects that are only enabled by solar modules. They don't want to take the risk. And so that element of certainty sort of puts them in a position of less contract, let's make sure we can get contract with the trusted and credible counterparty and derisk their projects. And so we're seeing a lot of that in terms of the conversations that we are having. We're also doing a lot more business with utilities who are -- who also are concerned about their brand, their image and integrity, and they don't want to get co-mingled with any concerns around forced labor or other trade issues or beholden to any geopolitical risks that may happen between U.S. and China over time. And so it's a different risk profile that they're willing to take, and they look to First Solar as at their counterparty of choice. The same thing with the technology companies that we're seeing with huge load growth and not wanting to be exposed or at risk because of inability of modules to be delivered for their project. So there's a lot of many -- there's many different dimensions and elements that factor into this that I think put us in an advantaged position and all sort of resonates with our strategy around responsible solar and integrity in transactions and standing by our commitments with our customers. And I think a number we fully appreciate what we've done in 2022, right? So that majority of the projects that got executed in 2022 were First Solar modules at least on the utility scale side. And there's a good element of that, that I think is playing through with our counterparties and we referenced to a handful of them, as repeat customers this year between Lightsource BP and Leeward EDPR. I mean those are great partnerships that we've created over time that are enduring. Carbon intensity has always been a embedded in our responsible solar approach. Our CO2 footprint has advantage relative to our competition, our water usage, our overall emissions, our ability from a circular economy standpoint and recycling standpoint. All that's an advantage to us. I don't think it necessarily plays out uniquely with hydrogen, but I think it does play out with our brand promise and value position that we give to our customers.

And our final question today will come from Colin Rusch, Oppenheimer & Company.

Can you talk a little bit about some of the supply chain keeping up with your expansion, notably the glass supply chain, the dynamics around that? And then the second question, I'd be curious to hear about is, as you're working through some of the portfolios that you're going to supply, if you could talk a little bit about the size of those projects, how many of them are getting larger? And how much you're seeing in terms of a little bit smaller sizes kind of in the 20 to 60-megawatt range that may get built out here?

Yes. Supply chain expansion, I think, Colin, you referenced glass in particular but at the end of the day, the module is two sheet of glass and back rail or frame of some type, which has a little bit more steel. Glass is critical. And it's [indiscernible] we're in. We recently -- there was a joint announcement with us and beat around a factory that they're going to now start up to serve our glass needs, the factory that was idle in Pennsylvania, which will now start up and provide cover glass to us. And so one of the things that we're doing is we're really diversifying our supply chain from a glass standpoint, which is really important for us. We're also in some conversations with them to provide and with other parties of coated glass, substrate glass. So we're trying to really broaden our reach and engagement. What's also nice about this as some of those parties -- counterparties that we're working with on the glass, in particular, are looking at solar as a strategic market that they want to be a part of, and we've got a great opportunity to leverage that with them to enable their strategic intent coupled with ours. So I'm more optimistic you would ask me 6, 9 months ago, where we were, I would say, I'm more optimistic now with some of the work the team has done to enable that supply chain from a glass standpoint in particular. Size of the projects generally are larger. We're not really seeing in many of the projects in kind of that 40 to 60 megawatts. I mean most of the projects that we're targeting with our customers are all in the 100 megawatts and generally getting larger and as you start to get into the hydrogen space, which we're starting to see some opportunities down that path. I mean those are 300, 400, 500-megawatt type of projects, in which we'll continue to grow at least as that evolves more and it goes beyond just a smaller opportunities at the full-scale hydrogen projects that are product finance and what have you, those are going to be large projects, and that's why the reason why I think that demand inflection point on hydrogen probably hasn't been fully appreciated with most people's forecasts.