First Solar - Q2 2023

Transcript

Operator (participant)

Hello, 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. At this time, all participants are in a listen-only mode. As a reminder, today's call is being recorded. I would now like to turn the call over to Richard Romero from First Solar Investor Relations. Richard, you may begin.

Richard Romero (VP, Treasury and Investor Relations)

Good afternoon, and thank you for joining us. Today, the company issued a press release announcing its second 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 provide a business update. Alex will discuss our financial results and provide updated guidance. Following their remarks, we will open the call for questions. Please note, this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. 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 Widmar (CEO)

Thank you, Richard. Good afternoon, and thank you for joining us today. With half of 2023 behind us, we continue to see strengthened commercial, operational, and financial foundations, both in 2023 and in the coming years as we continue to grow. Second Quarter of the year continued the steady progress established in the first as we ramped up production and delivery of our next Generation Series 7 modules, reinforced our global leadership in thin-film PV with a strategic acquisition, and continued our strong bookings and ASP momentum. Moreover, continuing our commitment to sustainable long-term growth, earlier today, we announced that we will invest up to $1.1 billion in building a new, fully vertically integrated manufacturing facility in the United States, our fifth in the country.

Driven by compelling market fundamentals, supportive trade and industrial policies, and robust customer demand, as reflected in our year-to-date bookings, total contracted and booked backlog, and pipeline of mid- to late-stage opportunities, we are pleased to continue to expand and invest in domestic manufacturing in the United States. This new facility is anticipated to be completed and begin production in the first half 2026, and along with our Alabama facility, currently under construction, will produce our Series 7 module, which is expected to be a fully domestic product and is determined by the current guidance issued by the U.S. Department of the Treasury. This new investment puts us on track to grow our manufacturing footprint to approximately 14 GW in the US and 25 GW globally by 2026, reaffirming the growth thesis we established in November 2016.

As noted on previous earnings call, the position we are in today is enabled by our points of differentiation. Our unique CadTel semiconductor technology, vertically integrated manufacturing process, decision to locate manufacturing close to demand and develop robust local supply chains, and unwavering commitments to responsible solar makes us a partner of choice for large, sophisticated developers, both in the US and internationally. As reflected by our continuing bookings progress since the previous earnings call, this differentiation continues to be a driver of long-term growth and competitiveness, placing us in a position to exit this decade in a stronger position than we entered it. Beginning on Slide 3, I will share some key highlights from the Second Quarter.

We continue to build on our backlog with 8.9 GW of net bookings since our last earnings call, and an ASP of 29.3 cents per watt, excluding adjusters where applicable. Note, for approximately half of this volume, the customer is responsible for the associated freight costs, which are therefore not reflected in booked ASPs. Including typical freight costs, the average ASP across these bookings would increase, increase to over 30 cents per watt. These bookings bring our year-to-date net bookings to 21.1 GW. Our total backlog of future bookings now stands at 78.3 GW, including 48.5 GW of mid- to late-stage opportunities.

As it relates to manufacturing, we produced 2.4 GW of Series 6 modules in the second quarter, with an average watts per module of 468, a top bin class of 475 watts, and a manufacturing yield of 98%. As noted in Q1 earnings call, our third Ohio factory, which establishes the template for high-volume Series 7 manufacturing, began operations in January and is continuing to ramp, demonstrating a manufacturing production capability of up to 13,000 modules per day, which is approximately 84% of nameplate throughput. The factory has produced a total of 425 MW in Q2, for a total first half 2023 production of 595 MW. The factory recently demonstrated a top module wattage produced of 540 watts, which implies a record production efficiency of 19.3%.

We sold 215 MW of Series 7 modules in Q2, and are pleased to note that the product is already being deployed in three projects in Arkansas, Arizona, and Mississippi. Staying on technology, we also announced during the quarter a limited production run of our first bifacial module panels, utilizing an advanced thin-film semiconductor. The module, which is undergoing field and laboratory testing, builds on the track record and energy advantage attributes of First Solar's successful Series 6 monofacial module platform, and we expect to begin lead line commercial production by Q4 2023. Notably, the bifacial module features an innovative, transparent back contact, pioneered by First Solar's research and development team. The transparent back contact, in addition to enabling bifacial energy gains, allows infrared wavelengths of light to pass through rather than be absorbed as heat.

This is expected to lower the operational temperature of the bifacial module, resulting in higher specific energy yield. We believe that the transparent back contact is a foundational step towards the development of future tandem products. Similarly, our acquisition of Evolar, the European leader in thin-film perovskite-N and CIGS technology, is also expected to accelerate the development of next-generation PV technology, including high-efficiency tandem devices, by integrating Evolar's know-how with First Solar's existing research and development streams, intellectual property portfolio, and expertise in developing and commercially scaling thin-film PV. Moving to Slide 4, we continue to make steady progress at our manufacturing and R&D facility expansions. Starting with India, construction of the factory is now complete, and pre-production testing of the installed tools is ongoing, with the first complete module having been produced in June.

We expect this facility to begin production by the end of August this year, and when fully ramped, add 3.4 GW of annual nameplate manufacturing capacity to our global fleet. We are also on track to expand and upgrade our Ohio Series 6 factories to achieve an additional aggregate annual throughput of 0.9 GW, with the additional capacity expected to come online in 2024. Similarly, our new Alabama facility is also on schedule for completion by the end of 2024, with commercial operations ramping through 2025. This facility is expected to add 3.5 GW of annual nameplate capacity once fully ramped, increasing our annual nameplate capacity in the US to over 10 GW by 2025.

As it relates to our fifth US manufacturing facility announced earlier today, we continue to evaluate siting options based on the availability of suitable land and related infrastructure, proximity to our supply chains, access to skilled labor, and other factors, including the availability of state-level incentives. We expect to announce our location decision shortly. Our dedicated R&D facility is also on track, with construction well underway and tool sets ordered. As previously noted, this facility will feature a high-tech pilot manufacturing line, allowing for production of full-size prototypes of thin-film and tandem PV modules. This, we believe, will allow us to optimize our R&D efforts and progress our technology roadmap with significantly less disruption to our commercial manufacturing lines.

Note, since the announcement of the Inflation Reduction Act, approximately one year ago, we have committed over $2.8 billion in capital investments into United States across our existing Ohio manufacturing facilities, a new manufacturing plant in Alabama, a new research and development center in Ohio, and most recently, our fifth U.S. factory announced today. We expect this will result in the creation of approximately 700 new direct jobs, as well as multiples of this number in incremental indirect jobs, including across our supply chain. Before we move to the next slide, I would like to take a moment to discuss the policy environment in our key markets. Starting in the United States, we are appreciative of the work done by the Biden administration to issue IRA-related guidance on Section 48C, direct pay, tax credit transfers, and domestic content.

We are pleased with the direct pay regulations issued during the quarter, clarifying that the five-year direct pay period under Section 45X may be elected on a facility-by-facility basis, which will benefit our previously announced factory in Alabama, as well as our new facility announced earlier today. We are actively engaged with the administration and working with our customers to ensure that the guidance, particularly with regards to domestic content, will deliver on the IRA's intent to sustainably grow US manufacturing and reshore a vital clean energy supply chain. Before specific, specifically, more specifically on domestic content, we have shared our comments on the current guidance with the administration and are working to provide our customers with the direct cost information needed to enable their ability to benefit from the bonus credit for using US-made content.

Our U.S.-produced modules are well-positioned to enable our customers to qualify for the domestic content bonus credit, due to both our vertically integrated manufacturing process, where the entire module, including the cell, is manufactured in America, and our commitment to investing in domestic supply chains. Today, our U.S. operations use 100% U.S.-made glass and steel, among other components. As it relates to trade, we are awaiting the Department of Commerce's final determination in its investigation of Chinese manufacturers accused of circumventing U.S. antidumping and countervailing duties. We believe that the department's investigation is a step in the right direction and sends a clear signal that the United States remains committed to the rules of international trade law and to trade that is both free and fair.

Relatedly, we applaud the role of U.S. Customs and Border Protection in enforcing the Uyghur Forced Labor Prevention Act, and its transparency in reporting statistics through a public dashboard. Given the significant undertaking required to execute its mandate under the Act, we believe the agency needs to be more adequately resourced to ensure the enforcement is extended beyond the handful of high-profile Chinese solar manufacturers currently being scrutinized. The relatively narrow scope of enforcement would effectively allow lesser-known solar panel manufacturers, who may source their polysilicon from the Xinjiang region of China, to freely export their products into the U.S. without risk of detention. Internationally, we continue to follow policy developments in Europe, where the EU is working towards a path to energy self-sufficiency.

However, we are cautious in that the market, given the recent collapse in polysilicon pricing and the impact that irrationally cheap solar panels, driven by oversupply and dumping into Europe, may have on the political wellness to deliver a comprehensive legislative solution that both levels the playing field and incentivizes domestic manufacturing. While we remain engaged with the EU, we are pleased to see its member states move forward with their own plans to reshore solar manufacture. Most notably, Germany's Federal Ministry of Economics and Climate Protection recently launched a request for expression of interest in a plan to build approximately 10 GW of vertically integrated solar manufacturing capacity in the country. The ministry launched the initiative under the Europe's Temporary Crisis and Transition Framework, and we intend to submit a non-binding expression of interest.

However, we continue to hold the position that manufacturing CapEx incentives alone are not an adequately sustainable solution to Europe's challenges. If mechanisms are not put in place for domestic manufacturers to have a sustained level playing field for their capital investments, Europe will find it challenging to achieve what the US and India have been able to do in a relatively short period of time. Moving to Slide 5. As of December 31, 2022, our contracted backlog totaled 61.4 GW, with an aggregate value of $17.7 billion. Through June 2023, we entered into an additional 13.6 GW of contracted and recognized 4.7 GW of sold volume, resulting in a total backlog of 70.3 GW with an aggregate value of $20.8 billion, which equates to approximately $0.296 per watt.

An increase of $0.008 compared to end of year 2022, and $0.028 per watt compared to June 30th, 2022. Since the end of the Second Quarter to date, we have entered into an additional 7.5 GW of contracts, bringing our total backlog to date to a record 77.8 GW. Included in our backlog since the previous earnings call are contracts of approximately 1 GW or more, with new customers, Capital Power Development and Matrix Renewables USA, as well as with a large European customer. We also signed and announced on July 16th, a follow-on 5 GW deal with Energix Renewables, a leading Israeli developer and repeat customer. 4 GW which sits within our bookings, and 1 GW of which is contract subject to conditions precedent.

In addition, we concurrently amended a previously booked deal with Energix, increasing the module ASP and committing to providing US modules for 850 MW of their projects. Since the announcement of the IRA, we have amended certain existing contracts to provide US-manufactured products, as well as to supply Series 7 modules in place of Series 6. As a consequence, over the past four quarters up to the end of Q2 2023, we have increased our contracted revenue by $312 million across 9.2 GW, or approximately $0.034 per watt. Note, we are still progressing additional amendments associated with providing US manufactured and Series 7 products, which we expect to be reflected in our Q3 contracted revenue backlog.

As we've previously addressed, a substantial portion of our overall backlog includes the opportunity to increase the base ASP through the application of adjusters. If we're able to realize achievement within our technology roadmap, as is the required timing for the delivery of the product. As of the end of the Second Quarter, we had approximately 36.4 GW of contracted volume. With these adjusters, if fully realized, would result in additional revenue of up to $0.7 billion or approximately $0.02 per watt, the majority of which would be recognized between 2026 and 2027.

As previously discussed, this amount does not include potential adjustments, which are generally applicable to the total contracted backlog, both for the ultimate module then delivered to the customer, which may adjust the ASP under the sales contract upwards or downwards, and for increases in sales rate or applicable aluminum or sales commodity price changes. Finally, this amount does not include any remaining potential higher rate domestic content price adjustments in excess of the already amended 9.2 GW referenced above. Our contracted backlog extends into 2030, including our most recent bookings. Excluding India, we are sold out through 2026. Note, some production from India is expected to be used to support US deliveries in 2024 and 2025. As reflected on Slide 6, our pipeline of potential bookings remains robust, with total booking opportunities of 78.3 GW, a decrease of approximately 34 GW since the previous quarter.

Our mid to late stage opportunities decreased by approximately 24 GW to 48.5 GW and includes 41 GW in North America, 5.5 GW in India, 1.8 GW in the EU, and 0.2 GW across all other geographies. The decreases in total and mid to late stage pipelines from Q1 2023 to Q2 2023 are the result of both converting certain opportunities to bookings, as well as the removal of certain other opportunities, given our sold-out position and diminished available supply. They also reflect the removal of one large multi-gigawatt, multi-year opportunity, where we were unable to come to terms with the customer. As we previously stated, we will continue to forward contract with customers who prioritize long-term relationships and value our differentiation.

Given the strength and duration of our current contracted backlog, we will be strategic and selective in our approach to future contracting. Included within our mid to late stage pipeline are 6.7 GW of opportunities that are contract subject to conditions precedent, which include 1.9 GW in India. Given the shorter timeframe between contracting and product delivery in India relative to other markets, we would not expect the same multi-year contracted commitments that we are currently seeing in the United States. As a reminder, signed contracts in India will now be recognized as bookings until we have received full security against the offset. Moving to Slide 7. While we will release our annual sustainability report in the coming weeks, we'd like to take this opportunity to preview a few highlights with you.

As we have consistently noted, our commitment to responsible solar is not a tagline, but our way of doing business. This commitment is underpinned by the belief that solar should never come at the expense of the environment or human rights, and drives our company's environmental, social, and governance strategy and differentiation. It is this commitment that has driven down our greenhouse gas emissions, energy, water, and waste intensity per watt produced, and increased the percentage of women in our workforce in 2022 relative to the preceding year. Our achievements build on previous year's successes. We have developed a roadmap with additional initiatives to reduce our absolute Scope 1 and Scope 2 greenhouse gas emissions by 34% by 2028, and achieve net zero emissions relative to 2020 by 2050.

Crucially, we also recognize that we cannot get to net zero without a circular economy, and we continue to make progress on building circularity into our next generation modules and manufacturing processes, for raw material sourcing to high value recycling with closed loop semiconductor recovery. This is reflected in the fact that the Series 7 modules designed with sustainability in mind, and is our most eco-efficient product to date. It's also reflected in the fact that our new facility in India, which is located in a region of high baseline water stress is designed to be net zero water withdrawal PV manufacturing facility, which we believe to be the world's first. As a purpose-driven company, we consistently hold ourselves to a higher standard and proudly set new benchmarks in the hope that by leading by example, others in the solar industry will follow.

I'll now turn the call over to Alex, who will discuss our Q2 results.

Alex Bradley (CFO)

Thanks, Mark. Starting on Slide 8, I'll cover our financial results for the Second Quarter. Net sales in the Second Quarter were $811 million, an increase of $262 million compared to the first quarter. Increase in net sales was primarily driven by strong market demand that led to higher volume sold, commencement of sales of our next generation Series 7 modules, and an increase in module ASPs. Gross margin was 38% in the Second Quarter, compared to 20% in the first quarter. This increase is primarily driven by the increase in module ASPs, lower sales rate costs, and higher volumes of modules produced and sold in the US, resulting in additional credits from the Inflation Reduction Act.

Based on our on our differentiated, vertically integrated manufacturing model and the current form factor of our modules, we expect to qualify for a Section 45X credit, approximately $0.17 per watt for each module sold, which is recognized as a reduction to cost of sales in the period of sale. During the second quarter, we recognized $155 million of such credits, compared to $70 million in the first quarter. We encourage you to review the safe harbor statements contained in today's press release and presentation, the risks related to our receiving the full amount of tax benefit, we believe we are entitled to under the IRA. The reduction of sales rate costs during the quarter reflected improved ocean and land rates, a significant reduction in non-standard charges to container detention and demurrage, as well as a beneficial domestic versus international mix of volume sold.

The lower sales rate costs reduced gross margin by 8 percentage points during the second quarter, compared to 15 percentage points in the first quarter. Ramp costs, which include costs associated with operating a new factory below its target utilization and performance levels, were $29 million during the second quarter, compared to $19 million in the first quarter. Ramp costs reduced gross margin by 4 percentage points in each of the first and second quarters. Our year-to-date ramp costs are fully attributable to our new Series 7 factory in Ohio, which is expected to reach its initial target operating capacity later this year. We also begin to expect incurring ramp costs at our new Series 7 factory in India in the third quarter. SG&A and R&D expenses totaled $83 million in the second quarter, an increase of $8 million compared to the first.

This increase is primarily driven by additional investments in our R&D workforce, higher R&D testing costs, additional share-based compensation expense, and higher professional fees. Production startup expense, which is included in operating expenses, was $23 million in the Second Quarter, an increase of approximately $4 million compared to the First Quarter. This increase was attributable to higher pre-production costs at our new factory in India as we prepare for the start of production this quarter. Our Second Quarter operating results included approximately $8 million of non-module revenue associated with project earn-out payments from our former systems business. We also recorded a litigation loss of $36 million associated with a dispute with the Southern Power Company related to legacy EPC agreements for 5 foreign projects in the United States, for which we served as the EPC contractor. We are evaluating our options in relation to this litigation.

The year-to-date operating loss impact from legacy systems business-related activities was approximately $22 million. Our Second Quarter operating income was $169 million, which included depreciation, amortization, and accretion of $72 million, ramp costs of $29 million, production start of expense of $23 million, legacy systems business related impacts of $28 million, share-based compensation expense of $8 million. We recorded tax expense of $18 million in the Second Quarter, compared to a tax benefit of $7 million in the first quarter. The increase in tax expense was driven by higher pre-tax income and lower tax benefits associated with share-based compensation awards, with the majority of these awards vested during the first quarter of each year. The aforementioned items combined led to a Second Quarter diluted earnings per share of $1.59, compared to $0.40 in the first quarter.

Note, growth related to start-up and ramp costs have impacted Q1 and Q2 by 38 and $53 million, respectively, for a cumulative first half 2023 operating income impact of $91 million. Next turn to slide nine 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 $1.9 billion, compared to $2.3 billion at the end of the prior quarter. This decrease is primarily driven by capital expenditures associated with our new facilities in Ohio, Alabama, and India, and payment for our acquisition of Evolar, partially offset by advanced payments received for future module sales and additional drawdown on our India credit facility.

To relate to advanced payments, for substantially all contracts in our backlog at the time of booking, we typically require payment security in the form of cash deposits, bank guarantees, surety bonds, letters of credit, commercial letters of credit, and parent guarantees, targeting up to 20% of the contract value. Cash deposits, which are reflected on our consolidated balance sheet as deferred revenue, totaled approximately $1.5 billion at the end of the quarter, providing a meaningful portion of the financial resources required to fund our existing expansion efforts. Total debt at the end of the Second Quarter was $437 million, an increase of $117 million from the First Quarter, as a result of the loan drawdown under our credit facility for our factory in India.

Our net cash position decreased by approximately $0.5 billion to $1.5 billion as a result of the aforementioned factors. Cash flows used in operations were $89 million in the second quarter, primarily due to expansion-related activities. Capital expenditures were $383 million during the period. During the quarter, we secured a five-year revolving credit facility for $1 billion. We're focused on exiting this decade in a stronger position than we entered it, and liquidity is a crucial differentiator we intend to maintain. This facility provides us with the financial headroom and flexibility we need, while also balancing our ability to grow in response to demand for our technology. Continuing on Slide 10, I'll discuss full-year 2023 guidance.

As noted in our February guidance call, given the declining impact of our other segments, we stated we are no longer providing segment-specific guidance but would note any significant impacts to our consolidated financials. As it relates to our legacy systems business, year-to-date, we have seen approximately $20 million of revenue, $14 million of gross profit, $36 million of litigation losses within operating expenses. To relate to our module business, we expect to see approximately $40 million improvement in gross profit relative to our prior guidance. Given their size, these combined numbers do not impact our forecasted revenue and gross margin guidance ranges, which remain unchanged. Note, our full year Section 45X tax benefits forecast of $660 million-$710 million is also unchanged.

Our operating expenses guidance has increased to $450 million-$475 million to reflect the aforementioned litigation losses. Operating income and earnings per share guidance remain unchanged. I'd like to highlight that in terms of earnings cadence over the second half of the year, we anticipate that volume sold, revenue, IRA Section 45X benefits will be distributed approximately 40% in the third quarter and 60% in the fourth quarter. With operating expenses approximately evenly split between Q3 and Q4, this implies an expected second half 2023 EPS split of approximately 1/3 in Q3, 2/3 in Q4. Incremental capital expenses of approximately $100 million in 2023, associated with our newly announced US factory, are offset by a pushout in the timing of approximately $3 million in CapEx, associated with equipment upgrades previously assumed in 2023 into early 2024.

Our full-year 2023 capital expenses forecast is therefore reduced to $1.7 billion-$1.9 billion. This reduction in forecasted capital expenditure, combined with an expected increase in deposits associated with future bookings, results in an expected $0.3 billion increase to our forecasted year-end net cash balance, which is now $1.5 billion-$1.8 billion. To relate to our longer-term outlook beyond 2023, we plan to hold an Analyst Day at our Ohio campus on September 7th of this year, which will include a live webcast. Turning to Slide 11, I'll summarize the key messages from today's call. Demand continues to be robust, with 21.1 GW of net bookings year-to-date, including 8.9 GW of net bookings since our last earnings call, leading to a record contracted backlog of 77.8 GW.

Our continued focus on manufacturing technology excellence resulted in a record quarterly production of 2.8 GW. Our India, Ohio, and Alabama expansions remain on schedule. We expect to invest an additional $1.1 billion in a new US manufacturing facility, our fifth in the country, which is expected to begin production in the first half of 2026. Cumulatively, in the year since the announcement of the IRA, we've committed $2.8 billion of capital spending across manufacturing and R&D in the United States, which we expect will result in the creation of 1,700 direct new jobs and multiples of this number in new indirect jobs. From a technology perspective, we completed a limited production run of our first bifacial solar panel utilizing an advanced thin-film semiconductor and acquired Evolar AB, a European leader in thin-film perovskite and CIGS technology.

These investments are expected to accelerate our development of next-generation PV technology, including high-efficiency tandem devices. Financially, we earned $1.59 per diluted share, inclusive of a legacy systems business-related litigation loss. We ended the quarter with a gross cash balance of $1.9 billion and $1.5 billion net of debt, with additional debt capacity of $1 billion under our new revolving credit facility. We are maintaining our revenue and EPS guidance, including forecasted full-year earnings per diluted share of $7-$8. With that, we conclude our prepared remarks and open the call for questions. Operator?

Operator (participant)

Perfect. We will now go into the Q&A. If you would like to ask a question, please press star one on your telephone keypad. That again is star followed by the number one. All right, our first question comes from the line of Philip Shen. Philip, please go ahead.

Philip Shen (Senior Research Analyst)

Hi, everyone. Thanks for taking my question. 2 categories. First one on bookings. Looks like your ASP was strong and healthy for bookings ASP at about $0.327. Then you have, Mark, I think you mentioned the addition of another $0.02 of adders. Wanted to ask you, you know, what do you expect your bookings to look like ahead? You had a little bit of a quiet period during Q2, but then you ramped it up subsequent to July 1. Do you, do you think that accelerates now that you have new capacity announced? Then the second category of questions here is, you know, we thought you were sold out for 2024....

In that agreement that you announced today, you, you highlighted, and I think in some of the other agreements in, over the past few weeks, that you have more, that, that you've booked for 2024. How are you guys able to do that? Did someone, did the party cancel their order, or are you running above 100% utilization? Is there any more volume left to be sold in 2024, and how much is left for 2025? Thanks, guys.

Mark Widmar (CEO)

I'll maybe I'll take the second one first, Phil. The reason we're able to still commit to some opportunities in 2024 and 2025, it's really twofold. First is, and we highlighted in my prepared remarks, that we are using India in 2024 and 2025 for US shipments. Demand in the US was so strong, and we were structuring some deals with customers that we could meet, you know, 2024 and 2025 volume requirements, and then pull through outer years as well, where we had a little bit more supply. You know, those deals canceled out really well. We've used some of the India volume. We also have requirements under the incentive package that we received in India, that there's some amount of exports that need to be achieved.

Now what we've largely are doing is accelerating the timing of those exports into the first couple of years of production in India and using that to support the US market. That's a piece of it. The other is the, you know, the ramp of our Perrysburg Series 7 factory is going very well. That is creating some incremental capacity, you know, that's available in 2024 in particular. Then we're looking to pull forward some of the Ohio upgrades that we were talking about before. Remember, we, as part of our overall announcement, we indicated there's about 0.9 GW of volume that we would use to further throughput and drive more output out of our Series 6 factories in Ohio.

We are pulling forward some of those initiatives in order to create a little bit more supply earlier than we had anticipated. All that is helping kind of create supply for 2024, 2025. The biggest piece, though, I just want to make sure it's clear, is really the volumes we're going to support out of India. I also want to make sure it's clear that India is doing extremely well. It's just that we've got opportunities here in the US market, and they're attractive ASPs, and we're opportunistically using that volume to serve the US market at this point in time.

Bookings ASP, Phil, just to make sure I'm clear, what I said in my script is the bookings average ASP was $0.293, and that did not include sales rate for the about half of the volume. And if you include the impact of sales rate, then you would increase that ASP to be north of 30, maybe in the low 30s, when you include that, that volume or that ASP impact to the volume that we booked, it did not include sales rate. The momentum, you know, look, I think there was a little bit of, of activity going on with maybe people trying to understand the domestic content requirements. That didn't slow us down on the conversion side.

What I would say is that, you know, we had a very healthy quarter on, on conversions. As I indicated, you know, we've now have over $300 million of conversions of existing volumes that we already have in the books that we have converted now for, incremental ASP for you know, delivering Series 7, as well as, you know, domestic content requirements. You know, good volume, good activity going on there. You know, I think the, the momentum will, should accelerate a little bit from, the announcement of the new facility, the new factory. I do think that'll give us incremental supply that, you know, will better position maybe a little bit of acceleration.

You know, look, I, I look at the, the quarter, you know, we excluded about 1 GW of the Enlight deal, which was, you know, a framework agreement, and that's because there's an option effectively associated with that volume. If I include that, it's another 10 GW quarter, essentially. You know, we've been on a pretty solid streak of 10 GW each quarter. You know, if we can carry the momentum through the, through the balance of the year, you know, we have an opportunity to position ourselves for maybe 35 GW-40 GW for this year. I think that's a very strong result. You know, given we're, we're gonna ship 12 GW this year, we're just continuing to build to that contracted backlog, and we're getting great ASPs, you know, in order to do that.

You know, I think on balance, we're, we're pretty happy with what we're seeing from a bookings ASP standpoint.

Philip Shen (Senior Research Analyst)

Great. Thanks, Mark. Actually, just wanted, since I'm on the line still, just want to clarify. Your 29.6 is the ASP for the whole backlog, whereas the 32.7 I was talking about, I think that's the ASP for the incremental bookings since the first quarter. Is, is that correct?

Mark Widmar (CEO)

Got it.

Philip Shen (Senior Research Analyst)

Just to clarify, so.

Mark Widmar (CEO)

The total backlog at the end of the quarter, which was about 70 GW, that average ASP was $0.296. The bookings since the last earnings call, which was 8.9, was $0.293. That did not include sales rate of half the volume. If you include the sales rate, normal sales rate adjuster or sales rate, then equivalent ASP would be in the low $0.30s. Those are the numbers.

Philip Shen (Senior Research Analyst)

Okay, got it. Thanks. I'll pass it on.

Operator (participant)

All right. Thank you. Our next question comes from the line of Brian Lee. Brian, please go ahead.

Brian Lee (Analyst)

Hey, guys. Good afternoon. Thanks for taking the questions, and congrats on the new factory announcement. I had two questions here. I guess first off, on, you know, the domestic content rules since they've been out from mid-May, what have you been articulating, or I guess maybe the customer feedback has been around the 40% and 55% threshold? Is that basically going to be achieved by just buying Series 7 panels from Alabama and the new site? And then would you be expecting more pricing potential? It sounded like you did on volumes from those sites going forward, if you could maybe help quantify.

The second question was just on that new factory, any puts and takes on, you know, first half of 2026, maybe it's a little bit of a nitpicking item, but, would there be ability to move that up, given I think historically, you've talked about like a two-year build cycle. Is there, you know, room to have this even online, a bit earlier into the end of 2025? Thanks, guys.

Mark Widmar (CEO)

Yeah, the, on the, domestic, content, rules, again, the way it's defined right now is that there are components that will determine if the module is manufactured in the U.S., therefore, is a manufactured domestic product. As we indicated in our remarks, is that for Series 7, especially for our new factories, we'll be 100% compliant with, with all of those requirements. All those components that have been identified will be manufactured in the U.S. again, that's a strategy that we embarked upon years ago to have a local supply chain. As a result of that then, you know, the full entitlement for the module will be captured at the project level. As you know, there's no one else that meet those requirements.

Very few other manufacturers who've made announcements in the U.S. will, will actually manufacture the cell. Very few, if any, will get glass in, in the U.S. I have yet to see an announcement of anybody indicating availability or contracting for glass in, in the U.S. We've been unique in our position there and been able to, to capture very strategic partnerships around sourcing of our glass. I think we'll be in an advantaged position. Our, our customers are clearly still trying to do the math.

I think there are still questions, but I think there's a high level of confidence that First Solar is the best-positioned module to ensure the domestic content bonus, which is why we also see such a high volume of conversions that are being done, as, as I referenced in my prior response to Phil as well. So that's where, you know, from a domestic content standpoint, working very closely, we are providing, we're being very transparent. I know there's been some speculation that, you know, you know, manufacturers are not willing to provide cost-level information. We, we are obviously willing to do that. We would have preferred to have this, basically, from a taxpayer perspective, their module price. I think it's a lot easier to do it that way versus maybe the difficulty and the complexity that's being embedded in the, the requirements right now.

We're managing through that, and we're more than willing to accommodate our partners to ensure they get qualified for the bonus to the extent of the module's contribution. You know, they're still probably working through and understanding the tracker and the inverter, in particular, and how it all aggregates up at the project level. I think everybody realizes that Series 7, in particular, First Solar, you know, in general, is going to be meaningfully advantaged relative to anyone else manufacturing in the US today. As it relates to the factory timing, look, we haven't announced the site yet, and so we're still working through the site selection.

The timing of the site selection, the timing of, you know, the ability to get on site, finishing the permitting, starting to move dirt around, and more importantly, energizing, getting, you know, transformers and other things to, you know, available so we can energize, will all determine that ultimate start of that manufacturing facility. I think it's prudent to stick with what we indicated in our prepared remarks. If everything does go well, is there a potential to accelerate? Sure, there's obviously potential to accelerate, but we got a lot of work to do before we can determine if that's possible or not.

Operator (participant)

All right, thank you. Our next question comes from the line of Joseph Osha. Joseph, please go ahead.

Joseph Osha (Senior Research Analyst)

Hi. Thanks, you, everybody. Two questions. First, you know, I'm seeing perovskites and CIGS talked about. I'm wondering if we might get some sense as to when we might see those turning up in shipped products, and also whether, you know, if we're talking about, tandem cells or higher efficiency products, whether we might see, see those begin to show up on, in rooftop. I do have one other question. Thank you.

Mark Widmar (CEO)

Look, I would say on the, on the perovskites side of the house in particular, I'm very happy with capabilities that Evolar brings to the table there. I think it's very complementary to capabilities that our own internal team has. And on, on a continuum of maybe, slightly different approaches, but both demonstrating very good results. And again, there's a combination of challenges, but one, first and foremost, that everyone is working through is stability of the device. Efficiency is obviously important, but you also need something that's stable, and perovskites in general have historically had issues and challenges with trying to demonstrate long-term, durable, stable devices. So having there on CIGS, Evolar's got some very deep capabilities there and, you know, record cells that they've demonstrated, I think, north of 23%.

You know, we are, we think that there's a potential for a tandem technology, thin-film, thin-film, that can get to market sooner than maybe perovskites can, at least at this point in time. That would be a CadTel cell, top cell with the CIGS bottom cell. If we were able to do something like that, then that would clearly give you a higher efficiency product that could expand our addressable market. That's largely why we're investing in the technology the way we are. I mean, we are a module manufacturing technology company. We want to be a technology leader. We are a world-class leader when it comes to thin-film devices. Both of these are thin-film semiconductors, and we'll continue to evolve, you know, the capabilities there.

You know, as it relates to, you know, when we can get to market, you know, that's it's probably too early to determine. There's a lot that needs to be done yet, to address a number of, you know, hurdles and issues that have to be resolved. But I'm encouraged with at least the platform that we have, very complementary to, you know, our, our world-class leadership that we've taken in, in CadTel. These are two alternative thin films that can be very complementary, and I think can further our technology leadership over time.

Joseph Osha (Senior Research Analyst)

Thank you. My quick follow-up, Brian alluded to this a little bit. Just stepping back from the, the just-announced factory and thinking more out towards the end of the decade, should we kind of think about, you know, 18 months to 2 years as a reasonable cadence for your ability to add manufacturing, given, you know, site selection, tools, all this, all this kind of stuff? Or, you know, could it be slower, faster?

Mark Widmar (CEO)

I, I think I'd, I'd mark it to that 2, 2-year cycle. I think that's probably the right timeline. I mean, there's other issues that we're running into. You know, it also varies where we're going to go. You know, if we go to India, then I would argue potentially India could be a little bit faster. U.S. is running to a number of challenges, especially around construction, and, you know, timelines to do that, the ability of work-workers, access to, you know, energization of the factory. You know, we'r.e still looking at Europe and, you know, it depends on what path we go in Europe, then, you know, that could also maybe be a slightly shorter timeline than what the U.S. is right now.

I think the best way to look at it is kind of a two-year timeframe.

Joseph Osha (Senior Research Analyst)

Understood. Thank you.

Operator (participant)

All right. Perfect. Our next question comes from the line of Julian Dumoulin-Smith. Julian, please go ahead.

Aleksander Wrobel (Analyst)

Hey, guys, it's Alex Wrobel for for Julian. Just to, to question on the domestic content one more time. I, I mean, you alluded there, Mark, to, you know, some of the, the sort of myths and bits that have to be clarified here. I'm just curious, given you guys have already sort of booked some, some, I guess, ASP uplift in 2024 relative to offering domestic content, if there's any sort of, I guess, clawback potential from the developer if they're actually not able to get it, given some of the clarifications that we're waiting on. I'll throw my second in here as well.

When you, when you think about the longer term, I guess, expansion opportunity in the US, you guys have sort of historically been about a third of the US market, I think upwards of 70 GW announced as far as module, in the U.S. currently. How do you think about sort of your broader market share in the US and what that could become over time, as we get into the latter half of the decade? Thanks.

Mark Widmar (CEO)

As it relates to most of those, just as a reminder, most of the conversions that we, that we put in place, you know, that relates to 2023, 2024, and 2025, that's really what the years it sits in. Those were all somewhat thought through and envisioned as a potential opportunity through the contracts that we were structuring at that point in time, in which we, we implied domestic content. To the extent certain rules would come through, and to the extent we provided them with a domestically manufactured product, that, you know, we would be entitled to incremental ASP. In the other case, we left them open, and it was really up to, to the customer. You know, if you want domestic supply, then fine, we'll provide it.

We have the option to provide it internationally as well. If you want domestic, then, you know, we'll negotiate an incremental ASP from that standpoint. As it relates to any clawbacks or provisions in those adjustments and modification amendments that we did, really, there's nothing embedded in those agreements that would result in that. I will say on new volumes that we're booking now, there are provisions in there that would require an adjustment to the extent we do not meet the representations that we gave the customer, right? For example, I said that for our Series 7 product would be a domestically manufactured product, and therefore, the list of 10 or however many components there are would all be manufactured in the US, and therefore, the product would be domestically manufactured.

We've given ourselves some buffer relative to that, and to the extent we don't manufacture the product as currently envisioned to ensure that all those components are domestically manufactured, yes, then there would be a potential impact LD for that, lack of performing effectively, right? That's all within our own control, and if the project qualifies or doesn't qualify, we're, we're held harmless. As long as we meet our requirements, whether the project level hits its 40% or 55% or whatever it may be, there's no, there's no recovery or callback from First Solar. The only thing we have, which you would expect under any contract, we have an obligation to comply, and we, we made a representation around it being a domestically manufactured product. Therefore, those components, which have been identified, have to be manufactured in the U.S.

Really, you know, I see that as not a lot of risk because that's what we're doing already. All that's being sourced here in the U.S.

Aleksander Wrobel (Analyst)

Got it. Yeah.

Operator (participant)

Sorry, I think I cut you off there a little bit. Our next question comes from the line of Vikram Bagri. Vikram, please go ahead.

Vikram Bagri (Analyst)

Hi there. I was hoping that you could give a little bit more color on the expected increase in module gross profit relative to your prior expectations. Just kind of what's driving that? What are the puts and takes there? How much of that benefit is coming from sales rate versus manufacturing efficiencies?

Mark Widmar (CEO)

Yeah, it's a little bit of both. We're definitely seeing a drop in sales rate. We did forecast there were drops throughout the year, perhaps dropped a little bit earlier in Q2 than we had expected. I'd say more than half of what we have added in terms of module gross profit to the guide is associated with better sales rate. There is a little bit of improvement in the core relative to our previous guide as well. Importantly, just to make sure it's clear, we said that we're not changing our forecasted Section 45X benefit, it's not an increase in the cost of goods line or in the gross profit line associated with a reduction in cost of goods from IRA benefits. It's all sitting across core cost of production and sales rate.

Vikram Bagri (Analyst)

Got it. Thank you. Just one follow-up. In terms of the mix of deliveries, you mentioned some recent contracts which have projects in Europe, as well as in the U.S. How are you thinking about supplying those? Could we expect any supply coming from, from the U.S.? Just how do you think about the pricing dynamic in those markets where ASP is a bit lower than we see domestically?

Mark Widmar (CEO)

Yeah. We currently are not envisioning sourcing anything from the U.S. to Europe. Now, could there be a particular deal, you know, that we've contracted that would, you know, because of a particular fan that we needed for that project, or a particular product that we needed, you know, could it come from the U.S.? Potentially, that's not the intent. The intent would be to support Europe out of our international factories in Malaysia, Vietnam. You know, obviously, Malaysia and Vietnam are also our two lowest cost factories before India gets up and running. When India is up and running, it will, it'll become our lowest cost factory in the fleet. Right now, they're our two lowest cost factories. Yes, we are...

You know, we have global customers, right? You know, very large utilities, or oil and gas majors that want global supply. That they have projects in the US, and they have projects in India, they may have projects in Europe, and they want to have product and enter into agreements with First Solar that we can source not just a particular region, but multiple regions. No different than, you know, with the Energex deal that we announced. I mean, that was volume for the U.S., it included volume in Israel, and it included volume in Poland, you know, at least potentially identified, which is where they're developing.

You know, we, we will have, we do have to differentiate pricing in some regards, with, with, you know, and be competitive in those, in those opportunities relative to where other global pricing has gone. We still will get a premium. You know, we're not in a position where we're having to price liquidation type of fire sale ASPs like others are doing right now because, you know, there's a long-term relationship that we have with, with strategic partners. And I think using Energex as, as, as an example, to the best of my knowledge, they are 100% sourced to First Solar, regardless of where their projects are.

I have to make sure that they can be competitive in the markets in which they compete in, and I can't, you know, establish a market a price that's meaningfully out of market. We price accordingly.

Operator (participant)

Okay, perfect. Thank you so much. That is all of the questions we have time for today. We would like to thank everyone for taking the time to dial in today. You may now disconnect.