First Solar, Inc. Q4 FY2020 Earnings Call

Good afternoon, everyone, and welcome to First Solar’s Fourth Quarter 2020 Earnings and 2021 Guidance Call. This call is being webcast live on the Investors section of First Solar’s website at investor.firstsolar.com. As a reminder, today’s call is being recorded. I would now like to turn the call over to Mitch Ennis from First Solar Investor Relations. Mr. Ennis, you may begin.

Thank you. Good afternoon, everyone, and thank you for joining us. Today, the company issued a press release announcing its fourth quarter and full year 2020 financial results as well as its guidance for 2021. 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 update. Alex will then discuss our financial results for the fourth quarter and full year 2020. Following his remarks, Mark will provide a business and strategy outlook. Alex will then discuss our financial guidance for 2021. Following the remarks, we’ll 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, including, among other risks and uncertainties, the severity and duration of the effect of the COVID-19 pandemic. 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, Mitch. Good afternoon and thank you for joining us today. I would like to start by expressing my gratitude to the entire First Solar team for their hard work and perseverance throughout 2020. Although 2020 was a very challenging year, I’m proud of the way our team responded with our ongoing commitment to health and safety, delivering value to our customers and achieving our objectives in this unprecedented year. While Alex will provide a more comprehensive overview of our 2020 financial results, I would like to first note our full year EPS results of $3.73. This result came within, but towards the low end of the guidance range we provided at the time of our third quarter earnings call, largely due to the volume and timing of our Sun Streams 2 project sale. Despite this timing impact, continued intense competition across the crystalline PV supply chain, and unforeseen challenges related to the pandemic, we are very pleased with our financial and operational results in 2020. Turning to Slide 3, I will discuss some of our key 2020 accomplishments. Firstly, our vertically integrated manufacturing process, diversified supply chain and differentiated CadTel technology enabled us to mitigate potential disruptions to our manufacturing operations from the pandemic. Accordingly, we produced 5.9 gigawatts of Series 6 and exited the year with a top production bin of 445 watts. Secondly, driven by continued strong manufacturing execution, in Q4 we achieved a year-on-year 10% cost per watt reduction despite an increase in volume sold from our higher-cost facilities and an increase in sales freight costs. Thirdly, early generation First Solar CadTel modules that were installed at an NREL test facility in 1995 reached an installed life of 25 years and demonstrated a 25-year degradation rate of 48 basis points per year. While our manufacturing processes, product design, efficiency and warranted long-term degradation rates have improved significantly over the past 25 years, this result helps us understand a legacy performance baseline and provides further confidence in the superior long-term durability and degradation performance of today’s Series 6 product. Fourthly, we extended our limited power output warranty from 25 to 30 years for our Series 6 modules and our Series 6 modules are now protected by the industry’s first and only product warranty that specifically covers power loss from cell cracking, which can have a meaningful impact on reducing systems insurance costs. Finally, at year-end, we had shipments of 5.5 gigawatts, bookings of 5.5 gigawatts, and contracted an additional 0.7 gigawatt of volume that remains subject to conditions precedent. Overall, our operational financial results in 2020 have built momentum as we move into 2021. Turning to Slide 4, I’ll provide an update on our Series 6 capacity ramp and manufacturing performance. Over the course of 2020, we realized significant operational improvements comparing December fleet-wide metrics year-on-year, megawatts produced per day increased to 17.3 megawatts, an increase of 23%. Fleet-wide capacity utilization increased to 117%, an increase of 20 percentage points. Product yield increased to 97.6%, an increase of 3.2 percentage points. Average watts per module increased to 439 watts, an increase of 9 watts. As noted, our top production bin increased to 445 watts. Our manufacturing discipline and execution enabled us to achieve our cost per watt reduction objective for the year. We exited 2020 with 6.3 gigawatts of nameplate manufacturing capacity and effective January 1, we have rerated our throughput entitlement for purposes of calculating capacity utilization. Since launching Series 6, less than three years ago, the factory throughput entitlement was based on the initial tool set in factory design. Given the significant improvements made over the years, we have revised our throughput entitlements to reflect the 2020 exit rate throughput. Our strong execution has continued into 2021 with improvement across all key metrics since year-end. In addition to February, we commenced initial production of our second Series 6 low-cost factory in Malaysia. With less than three weeks of production, the factory is ramping nicely with demonstrated capacity utilization reaching approximately 80%, yields in excess of 90%, and a top production bin of 450 watts. By the end of the year, we anticipate our Malaysia factories will have a nameplate capacity of 3 gigawatts. Second, briefly on our systems segment. In February, we completed the sale of our 150 megawatt AC Sun Streams 2 project to Longroad Energy. We also signed agreements with Longroad to sell the Sun Streams 4 and 5 projects and are in late-stage negotiations to sign an agreement to sell our Sun Streams 3 project. As part of this portfolio acquisition, Longroad intends to utilize 1 gigawatt of Series 6, of which 785 megawatts will represent new bookings upon the closing of these transactions. Prior to signing the potential agreement to sell Sun Streams 3, the project PPA was terminated, which enabled Longroad to include Sun Streams 3, 4 and 5 projects in their power marketing efforts after transactions closed. While this resulted in approximately 85 megawatts of systems booking in February at the time of closing, we expect this opportunity will be recognized as a new module-only booking. Turning to Slide 5, I’ll next discuss our most recent bookings in greater detail. Our recent bookings momentum has continued with 3.3 gigawatts of net booking since the October earnings call. After accounting for shipments of approximately 1.8 gigawatts during the fourth quarter, our future expected shipments would extend into 2024, at 13.7 gigawatts. The majority of the bookings since the prior earnings call have been third-party module sales, which totaled 3.3 gigawatts. We continue to see an increase in multi-year module sales agreements, driven by our customer’s need for certainty in terms of technology they’re investing in and their suppliers' integrity and ethics. Representative of this, we have executed an agreement with Intersect Power to supply up to 2.4 gigawatts for deployment in projects in 2022 and 2023, of which approximately 2 gigawatts is recognized as a booking. In addition to this new booking, Intersect has the option to utilize an additional 0.4 gigawatts of module volume to support their project portfolio of up to 2.4 gigawatts. We’ve also secured 340 megawatts for deliveries in 2023 with a leading provider of hydrogen fuel cell solutions. A pillar of growth for the hydrogen economy is the ability to cost-effectively produce large-scale green hydrogen with renewable energy sources. With an environment of CadTel technology, we are well-positioned to address this market need. Additionally, in Japan, we have continued success adding to our contract assistance backlog with the addition of two projects totaling 51 megawatts. With new net bookings of 3.3 gigawatts and an additional 1.4 gigawatts of expected bookings associated with the closing on the sale of the Sun Streams portfolio and the U.S. project development business, we are pleased with the robust demand for our Series 6 product. Including these new bookings, volumes contracted to conditions precedent and the potential 0.4 gigawatts of incremental volume related to the Intersect transaction, we have 7.2 gigawatts of volume for potential deliveries in 2021, 5.9 gigawatts in 2022, and 2.3 gigawatts across 2023 and 2024. Overall, while the market remains competitive, we are very pleased with the pricing levels that we are securing to date for our differentiated Series 6 Plus and CuRe modules. And an industry that sells electrons and where products are evaluated based on the quantity of electrons they will produce, we also differentiate our business model through our commitments to the environmental footprint of our technology, product secularity, and supply chain transparency. We call it Responsible Solar, and you can learn more about it on our corporate website. Turning to Slide 6, I’d like to discuss the strategy and advantages of this approach. Firstly, due to our resource-efficient manufacturing process, our CadTel modules have the lowest carbon and water footprint available in the market today. With this advantage, Series 6 is the world’s first PV product to be included in the EPEAT registered for sustainable products, which conforms to the NSF 457, the industry’s first sustainability leadership standard. Designed to help institutional purchasers, EPEAT is used by national governments, including the United States, and thousands of private sector institutional purchasers worldwide as part of their sustainable procurement decisions. Secondly, we have over a decade of experience in operating high value PV recycling facilities on a global scale and remain the only solar manufacturer to have global in-house recycling capabilities. This recycling process establishes a circular economy by recovering more than 90% of the semiconductor materials for reuse in First Solar’s models and 90% of the glass reused in new glass container products. Thirdly, our vertically integrated manufacturing process enhances our supply chain transparency and control over the end-to-end manufacturing process. We believe that our responsible solar strategy is the right way to do business and in a growing number of markets yields an economic advantage. For example, France already has a rule that favors PV modules with a low carbon footprint, Spain has also appeared to be moving towards incorporating the carbon footprint metric and its renewable energy procurement program. The recent update requires owners of renewable energy generation assets to submit carbon footprint data to the countries' renewable energy registry, gathering the information needed to shape the procurement mechanism that may benefit low-carbon solar. In the United States, Vectren, a utility that services Indiana and Ohio, included an environmental emission minimization objective within their integrated resource plan. This objective accounts for the cradle-to-grave emissions impacts of different forms of generation, including the low carbon footprint of thin-film PV modules compared to crystalline silicon. In addition, Alliant Energy and Consumers Energy, two utilities in the Midwest, have included the aforementioned NSF 457 sustainability leadership standard for PV modules and inverters in their most recent solar solicitations. We’d also like to take the opportunity to touch on reported use of forced labor in China’s polysilicon manufacturing industry. We have repeatedly and unequivocally condemned the preparative use of forced labor in China’s PV solar supply chain, and we’ll continue to do so as long as it remains an issue. We also reiterated our commitment to zero tolerance of forced labor throughout our supply chain. We believe there should be no place for solar panels or even a single component, no matter how small, produced by a human being against their will. We’re seeing reports that authorities in the United States are developing plans to expand their Jinjang-specific import regulations to include solar. And in the latest version of the Forced Labor Prevention Act bill, the U.S. House of Representatives included polysilicon as a high-priority sector. We recognize the challenges of this potentially trading for companies that have traditionally relied on Chinese-based firms for their modules. But as an industry, we cannot accept a view of solar at any cost. This is an important reminder that over-reliance on China to supply subsidized solar panels comes at a price that may not always be reflected on the bottom line. It’s a price that many include – they include needing to look the other way on environmental, social, and human costs. It’s also yet another reminder, one of several we’ve had this past year, about the importance of diversity of supply. Before turning the call over to Alex, I would like to provide additional context on the effects of tariffs on the U.S. and global PV markets. In December 2012, during the Obama-Biden administration, the United States imposed anti-dumping and countervailing duties after determining that the domestic crystalline silicon industry was materially injured by imports of crystalline silicon cells and modules that were sold at less than fair value and subsidized by the government of China. In March 2019, the United States continued these tariffs. There’s also a second set of anti-dumping and countervailing duties on Chinese crystalline silicon modules with non-Chinese sales. Those duties were imposed in 2015 and in 2020, they were continued. Given the tariffs only applied to a portion of the crystalline silicon supply chain, Chinese manufacturers added cell and module capacity in nearby countries in Southeast Asia. Today, with this adjustment to their supply chain, our crystalline silicon competitors not only avoid these tariffs but also continue to use government-subsidized polysilicon, ingots, and wafers manufactured in China. Separately, in February of 2018 during the Trump administration, the U.S. imposed Section 201 tariffs on imported crystalline silicon cells and modules from most countries with limited exceptions over a four-year period. However, between June 2019 and November 2020, an exemption from Section 201 tariffs was granted for crystalline silicon bifacial modules. This exclusion enabled Chinese solar companies with bifacial cells and modules assembled in Southeast Asia to avoid the Section 201 tariffs as well as the anti-dumping and countervailing duties while they’re still using subsidized polysilicon and ingots and wafers from China. Despite access by the United States and India, most global markets have allowed unencumbered access to government-subsidized panels from China, resulting in PV Academy and global goals that are largely held into a single technology supply chain and country. We believe our differentiated technology and advantage cost structure, along with a balanced perspective on growth liquidity and profitability, has enabled and will continue to enable us to succeed in the global marketplace despite the lack of fair trade.

As the only alternative to crystalline silicon technology among the 10 largest solar module manufacturers globally, First Solar provides domestic supply security and enables the United States and global markets to reduce their over-reliance on imported panels from China. We remain hopeful for a future where both free and fair trade can be established in the PV industry. I’ll now turn the call over to Alex who will discuss our Q4 and full year 2020 results.

Thanks Mark. Starting on Slide 7, I’ll cover the income statement highlights for the fourth quarter and full year 2020. Net sales in the fourth quarter were $609 million, decreased to $318 million compared to the prior quarter. This was primarily a result of higher international project sales in Q3, partially offset by increased module volumes sold in Q4. For the full year 2020, net sales were $2.7 billion compared to $3.1 billion in 2019. But for guidance expectations, net sales were within, but toward the lower end of our guidance range. This result was primarily caused by factory shutdown on Q3 earnings call, which included the timing of the Sun Streams 2 project sale. To a lesser extent, net sales were also impacted by certain module deliveries that were delayed due to COVID-19 related events, including a positive case at a customer construction site, which resulted in a temporary shutdown and a shipping vessel containing First Solar modules that was diverted from its intended destination due to a positive case on the vessel. The percentage of total quarterly sales, our module revenue in the fourth quarter was 90% compared to 46% in the third quarter. For the full year 2020, 64% of net sales were from our module business compared to 48% in 2019. Gross margin was 26% in the fourth quarter compared to 32% in the third quarter. And for the full year 2020, gross margin was 25% compared to 18% in 2019. Systems segment revenue was $61 million in the fourth quarter compared to $505 million in the third quarter. Fourth quarter systems revenue was lower than anticipated primarily due to the delay in the sale of the Sun Streams 2 project. System segment gross margin was 18% in the fourth quarter compared to 33% in the third quarter. Fourth quarter was positively impacted by $9 million benefits associated with a reduction in estimated liquidated damages for legacy EPC projects, which increased systems on gross margin by 14%. For the full year, system segment gross margin was 26% compared to 16% in 2019. The module segment gross margin was 27% in the fourth quarter compared to 30% in the third quarter. As a reminder, the third quarter was impacted by a reduction in our product warranty liability reserve, a reduction on module collection and recycling liability and impairments on certain module manufacturing equipment for tools no longer compatible with our long-term technology roadmap. On a net basis, these factors increased Q3 module segment gross margin by 5 percentage points. Also as a reminder, sales rate warranty are included in our cost of sales and reduced module segment gross margin by 7% in the fourth quarter compared to 6% in Q3. Despite utilizing contracted routes, minimizing changes, and the use of the distribution center, we incurred higher rates during the fourth quarter for a portion of our module deliveries due to constrained container viability in the global shipping market. With this context in mind, we’re pleased with our Q4 module segment gross margin results, which achieved our guidance expectation. The full year module segment gross margin was 25% compared to 20% in 2019. Full year 2020 module segment gross margin included $20 million of severance and decommissioning costs and $4 million of ramp expense, which in the aggregate reduced module segment gross margin by 1.4%. From a fleet-wide perspective, as a result of our continued manufacturing execution, costs of goods sold at the end of 2020 met our target at a 10% decline at the end of 2019. SG&A, R&D, and production startup costs were $102 million in the fourth quarter and increased approximately $16 million relative to the third quarter. This increase was primarily driven by an increase in production startup expense from $13 million in Q3 to $17 million in Q4, $9 million of development project impairment charges in Q4, and a $7 million increase in incentive compensation expense relative to our guidance expectations, partially offset by cost savings. With this context in mind, we’re pleased with operating expense results relative to our fourth quarter guidance range of $90 million to $95 million. SG&A, R&D, and startup totaled $357 million in 2020 compared to $348 million in 2019. Included in the full year 2020 operating expenses was $41 million of production startup expense, $12 million of development project impairment charges, $7 million of severance charges, $6 million of class action and opt-out action legal fees, $3 million of expected credit losses on our accounts receivable as a result of the economic disruption caused by COVID-19, and $2 million of retention compensation expense. Combined with litigation losses of $6 million, total operating expenses were $363 million for the full year 2020. Operating income of $58 million in Q4 and $317 million for the full year 2020. We recorded a tax benefit of $66 million in the fourth quarter, which included a discreet tax benefit of $61 million associated with the closing of the statute of limitations on uncertain tax positions. For the full year, we recorded a tax benefit of approximately $107 million, full year net benefit from the CARES Act approximately $84 million, and $24 million related to the release of evaluation allowance in a foreign jurisdiction. During the fourth quarter with equity and earnings, we reported a full impairment of approximately $3 million related to one of our equity method investments. Fourth quarter earnings per share was $1.08 compared to $1.45 in the prior quarter. For the full year 2020 earnings per share was $3.73 compared to the loss per share of $1.09 in 2019. Next, turn to Slide 8 to discuss select balance sheet items and some of the cash flow information. Our cash and cash equivalent, restricted cash and marketable securities balance at year end was $1.8 billion, an increase of $123 million from the prior quarter. Our net cash position, which includes cash and cash equivalents, restricted cash, and marketable securities net debt at year end was $1.5 billion, an increase of $105 million from the prior quarter. Our net cash balance is higher than our guidance due to a lower than expected project spend on U.S. international development projects. The timing of cash payments to CapEx delayed the first quarter and improved collections on module sale agreements. Note, the contemplated payment structure, the timing of the Sun Streams 2 project sale, did not have any significant impact on our year-end cash balance relative to our guidance. Cash flow from operations was $37 million in 2020 compared to $174 million in 2019. Cash flow from operations in 2020 included the previously disclosed payments for the class action opt-out litigation settlements of $369 million and a decrease in module prepayments following an increase in Q4 2019 associated with ITC safe harbor module purchase orders. Also, as a reminder, when we sell an asset and project-level debt is assumed by the buyer, the operating cash flow associated with the sale is less than if the buyer had not assumed the debt. In 2020, buyers of projects assumed $137 million debt from these transactions. Capital expenditures were $89 million in the fourth quarter, compared to $106 million in the third quarter. Capital expenditures were $417 million in 2020 compared to $669 million in 2019. Before I turn the call back over to Mark, I’d like to provide an update on the strategic review of our U.S. project development North American O&M businesses. As recently announced, we signed a definitive agreement to sell our U.S. product development platform to Leeward Renewable Energy, the portfolio company of over the infrastructure. We want to follow a comprehensive multi-phase process where more than 160 parties were either contacted or expressed inbound interest when multiple structures were considered. Based on the extensive nature of this process and the offers that we received, we believe this transaction represents the most compelling option. We’re pleased that the platform will be acquired by Leeward, and almost the entirety of our U.S.-based product development team is expected to join Leeward upon closing. The transaction is expected to close in the first half of 2021 after obtaining regulatory approval and satisfying customer closing conditions. Subject to closing the acquisition, Leeward will sign 1.8 gigawatts of module purchase orders, of which 744 megawatts represent new bookings. Well, approximately 0.4 gigawatts are included in the upfront purchase price, the remaining approximately 1.4 gigawatts of modules are expected to be added to our contracted backlog and recognized as future module segment sales. As previously noted, regarding our U.S. product development sale announcement, we stated that we intended to retain 1.1 gigawatts AC of U.S.-based projects that we plan to sell separately. After this announcement, we closed the sale of our Sun Streams 2 project, signed agreements to sell Sun Streams 4 and 5, and are in late-stage negotiations to sell our Sun Streams 3, which totaled 750 megawatts AC. The remaining projects are uncontracted and are expected to be sold in 2021. As it relates to the sale of our North America O&M business to NovaSource Power Services, a portfolio company of Clairvest Group, although we initially expected the sale of this business to close in the fourth quarter of 2020, certain conditions to closing remain outstanding. We expect these remaining conditions to be satisfied and the transaction to close in the first half of 2021. I’ll later discuss the financial impact of these transactions during the guidance portion of today’s call. Now, I’ll turn it back over to Mark to provide a business strategy update.

All right. Thank you, Alex. As our company’s founding over 20 years ago, the PV industry has been through periods of rapid growth, declining costs, and technology evolution. We’re one of the few solar companies that both entered and exited this last decade. We have continued to adapt our business model to remain competitive and differentiated in a constantly evolving market. For example, our original assets into O&M, EPC, and project development was to address an unmet need of the market and capture a profit pool. Our acceleration of Series 6 production was a competitive response to address the current market condition. Despite these transformations, among others, our core identity as a module manufacturing company with differentiated CadTel technology has remained constant. As we look into the future, with a more focused business model, our pace of innovation will be critical to our competitive strengths, enabling us to leverage our points of differentiation and capture compelling value for our technology. CuRe, cell cracking warranty, and responsible solar strategy are recent examples of innovations enhancing our competitive position in the market. The market momentum for PV continues to build. Our Series 6 energy, quality, and environmental advantages are all key demonstrators, which we believe will enable us to meaningfully participate in this wave of demand for clean and affordable energy. Based on the growth of selected people markets and our competitive advantages, we believe we can grow our manufacturing capacity while still selling our products into regions where our technology has points of differentiation. Within this context, Slide 9 provides an updated view of our global potential bookings opportunity, which now totals 19.7 gigawatts across early to late-stage opportunities through 2023. In terms of segment mix, this pipeline of opportunities is exclusively third-party module sales. In terms of geographical breakdown, North America remains the region with the largest number of opportunities at 14.9 gigawatts. Europe represents 2.3 gigawatts. India represents 1.8 gigawatts with the remainder in other geographies. A subset of this opportunity set is at mid to late-stage booking opportunities of 12.6 gigawatts, which reflects those opportunities we feel could book within the next 12 months, and includes the aforementioned 1.4 gigawatts of contracted volume subject to the satisfaction of conditions precedent. This subset includes approximately 10.2 gigawatts in North America, 1.2 gigawatts in India, 0.9 gigawatts in Europe, of which 0.7 gigawatts is based in France, and the remainder in other geographies. This opportunity set coupled with our contracted backlog gives us confidence as we continue scaling our manufacturing capacity.

Turning to Slide 10, as we’ve continued to drive additional throughput, increased average watts per module, and improved manufacturing yield, our Series 6 production exited 2020 with a nameplate capacity manufacturing of approximately 6.3 gigawatts split between 4.1 gigawatts at our international factories in Vietnam and Malaysia and 2.2 gigawatts in Ohio. With the commence production at our second Series 6 factory in Malaysia, our global manufacturing footprint has increased to six factories. At the end of 2021, we anticipate increasing nameplate capacity to 8.7 gigawatts, which includes 2.6 gigawatts of capacity in Ohio and 6.1 gigawatts across four factories in Malaysia and Vietnam. This 2.4 gigawatts in incremental year-over-year capacity is reflective of our new Malaysia factory and expected improvements in average watts per module and throughput across the fleet.

By the end of 2022, we anticipate increasing throughput by 12% compared to our rebated throughput entitlement and expect continued improvements in our average watts per module and manufacturing yield. Accordingly, by the end of the year, we anticipate increasing our fleet-wide nameplate manufacturing capacity to 9.4 gigawatts, which includes 2.7 gigawatts of capacity in Ohio and 6.7 gigawatts across our international factories. This 0.7 gigawatts anticipated incremental capacity is expected to come from the optimization of our existing footprint. As previously highlighted, we are evaluating the potential for future capacity expansion and are looking to further diversify our manufacturing presence. In addition to the factors we’ve previously highlighted, we’re also evaluating domestic and international policies to ensure any such expansion is well-positioned. While we have made no such decisions at this time, any Greenfield capacity additions are unlikely to contribute to our 2022 production plan. From our production perspective, in 2021 we expect to produce approximately 7.4 to 7.6 gigawatts, which is within the 7.3 to 7.7 gigawatts range we provided at this time in the last February guidance call. Note, our second Malaysia factory will continue its ramp period through the end of the first quarter, and we are planning for over three weeks of downtime across the fleet to implement technology and throughput upgrades. In 2022, with the addition of the fully ramped factory in Malaysia and ongoing improvements across the fleet, we expect to produce 8.6 to 9.0 gigawatts. Turning to Slide 11, I will now provide an update on our technology roadmap. Over the course of 2020, we’ve made steady progress in our technology roadmap and ended the year with a top bin of 445. Early in 2021, we have demonstrated continued progress increasing our fleet-wide average per module to 444. For February month-to-date, and for our new Malaysia factory, we introduced our Series 6 plus module, the next phase of our technology roadmap with a current top bin of 450 watts. Leveraging our existing Series 6 toolset, we increased our module form factor by approximately 2% and increased our module efficiency, which has increased our top bin production by approximately 10 watts. Note, after ramping our second Malaysia factory, we anticipate our top bin will be 455 watts. Importantly, this increase in form factor is sized to reduce balance of system cost per watt by adding module wattage without material changes to the installation process or support structure. We anticipate implementing Series 6 plus across the fleet over the course of 2021. From our manufacturing cost perspective, we expect this additional wattage to reduce our costs and sales freight per watt, which I will later discuss. For the fourth quarter of 2021, we anticipate commencing initial production of our copper replacement Series 6 or CuRe on our lead line production. As previously disclosed, this program is expected to not only increase module wattage but also meaningfully improve lifetime energy performance. Accordingly, by the end of 2021, we anticipate our top production bin will reach 460 to 465, with an expected 30-year warranty degradation rate, approximately 50% below our existing baseline. Given PV power plants have an expected useful life of up to 40 years, our reduction in a module's long-term degradation is expected to be a material benefit to project economics, as it increases energy density of the module and life cycle energy generation. As demonstrated on Slide 12, we believe that benefits of improved module efficiency and temperature coefficient will result in a 7% higher energy density in the first year for our 465-watt CuRe module compared to our 440-watt Series 6 module. Due to the expected reduction in our CuRe module's long-term degradation rate, we expect this improvement can increase to 20% in year 40, representing a 13% improvement over the life of the asset. As we stated previously, we believe CuRe significantly increases Series 6’s competitiveness against bifacial modules. As a point of reference, bifacial modules generate an estimated 4% to 8% more energy than comparable monofacial modules. More importantly, CuRe’s energy uplift does not increase the module or balance assistant costs as typically seen with bifacial modules. By the end of the first quarter of 2022, we anticipate the entire fleet will be converted to CuRe. This is anticipated to provide additional benefits to our average watts per module and cost per watt. Through the implementation of our copper replacement program combined with our ongoing R&D program, we aim to achieve a top production bin of 475 to 480 watts by the end of 2022. Note, on our second-quarter earnings call, we stated that we expected a 480-watt module bin in 2023. With a CdTe cell efficiency entitlement in excess of 25%, we see a path to significantly increase our module output and efficiency in the midterm. With this path to increase efficiency coupled with our degradation, spectral response, and temperature coefficient energy advantages and vertically integrated manufacturing processes, we believe the outlook for our technology remains well positioned in the global PV market. Finally, we continue to focus on advanced research and development, evaluating the potential to move beyond a single junction device and leverage the high-band gap advantages of CdTe in a multi-junction device. A multi-junction device has the potential to be a disruptive high-efficiency, low-cost module within an advantageous energy generation profile. While the evaluation of this technology is in early development, we aim to utilize many of the product enhancements in our existing CdTe roadmap. Turning to Slide 13, I’ll provide some context around our module cost per watt. As initially presented on our guidance call in February 2020, we forecasted a Series 6 cost per watt reduction of 10% between where we expected to end 2020 and the end of 2019. Despite unforeseen challenges related to the pandemic, pricing pressures and the global shipping market and rising commodity costs, including aluminum, which we mitigated in part through a hedge structure and increased demand for PV glass, we executed on our cost per watt roadmap for the year and achieved this target. Looking into 2021, I’d like to start by addressing how we intend to manage key bill of material and sales freight costs. Firstly, given our module utilizes CdTe chemistry, our cost per watt is unaffected by fluctuations in polysilicon pricing. Secondly, from the glass perspective, growing solar demand and the emergence of bifacial modules have continued to put pressure on the supply and cost of PV glass. However, our glass procurement strategy primarily relies on forward contracts and localization of glass supply. In 2021, we intend to further localize our glass needs domestically in the United States and Malaysia through long-term supply agreements. This strategy enables us to mitigate the cost of variable spot pricing for glass and inbound freight. Thirdly, from a sales freight perspective, utilizing contracted routes and minimizing changes helped alleviate some of the impact of higher spot rates in 2020 and the first quarter of 2021. Despite higher shipping rates expected in 2021, we intend to utilize our distribution center strategy to mitigate some of these events. Note, we expect sales freight and warranty to produce module segment gross margin by 7 to 8 percentage points in 2021, compared to 7 percentage points in 2020. Finally, as part of our Series 6 plus implementation, we anticipate a reduction in the module profile by reducing the thickness of our frame and junction box. In addition to reducing the bill of material costs, we anticipate this development will enable us to increase modules per shipping container by approximately 10%. As it relates to our Ohio manufacturing facilities, despite exiting 2020 with a higher cost per watt in comparison to our international factories, we have made significant improvements in 2021 through the following initiatives. Firstly, in the fourth quarter, the manufacturing yield was 96%, which was below the fleet average. We anticipate this will improve to 97% by the end of 2021, which provides a benefit to our fixed and variable costs per module. Secondly, we anticipate an increase in our nameplate manufacturing capacity to 2.6 gigawatts by the end of the year, an increase of 18% compared to the end of 2020. Finally, our cover glass facility in Illinois started in the fourth quarter of 2020 and a float glass facility in Ohio started in the first quarter of 2021, and we’ll supply our Ohio factory. We anticipate this will provide a benefit to the variable portion of our cost per watt. With the implementation of these key initiatives, among others, we anticipate our Ohio cost per watt headwind relative to our international factories will exit 2021 at $0.02 per watt higher, including sales freight. On a fleet-wide basis, relative to where we exited 2020, we anticipate reducing our cost per watt produced by 11% by the end of 2021. Due to the ramp and underutilization costs related to the affirmation factory ramp upgrades and challenges related to sales freight, we anticipate reducing our cost per watt sold by 8% by the end of the year. As we look beyond the midterm, I would like to revisit the five key levers that we believe will enable us to continue to reduce our cost per watt. Starting with efficiency, we anticipate increasing our top production bin from 445 in December 2020 to a top production bin of 475 to 480 watts by the end of 2022. With a midterm goal of 500 watts per module, we see the potential for continued improvement in our module performance. Improvements in module watts generally provide a benefit to each component of the cost per watt, including our variable and fixed bill of materials and sales freight in warranty costs. Secondly, by the end of 2022, we anticipate increasing throughput by 12% compared to our rerated capacity utilization baseline through the implementation of the additional tools and debottlenecking efforts. This drives additional throughput on our existing manufacturing footprint resulting in fixed cost solutions benefits. Thirdly, while we’ve made steady improvements to our manufacturing yield over the course of 2020, achieving 97.6% in December, we anticipate a fleet-wide yield of 97.5% in 2021. While our international factories have achieved yield in excess of 98%, the plant upgrades for Series 6 plus and CuRe are expected to impact yield performance during the year. However, in the midterm, we see a path to increase our fleet-wide manufacturing yield to 98.5%. Fourthly, we see midterm opportunities to reduce our bill of materials costs by 20% to 25%, primarily across our glass and frame. Finally, we believe the combination of sending our module profile and transportation optimization can lead to a 15% reduction in freight costs. Combining the benefits of our CuRe and our other R&D work with the aforementioned cost levers, we believe we are strongly positioned to continue to drive Series 6 cost per watt efficiency and energy improvements over the near and midterm. I’ll now turn the call back over to Alex, who will discuss our financial outlook and provide 2021 guidance.

Thanks, Mark. Before discussing our 2021 financial guidance, I’d like to highlight our core mandate which is to endeavor to create shareholder value through a disciplined decision-making framework that balances growth, liquidity, and profitability. As it relates to growth, we anticipate increasing our nameplate manufacturing capacity to 9.4 gigawatts by the end of 2020, driven by the addition of our second factory in Malaysia and ongoing improvements in average watts to module throughput manufacturing yield. As Mark previously highlighted, we’re evaluating potential future capacity expansion and may do so beyond our existing geographic footprint. Strong booking performance in 2020 and year-to-date 2021 as well as the current forward contract position of 13.7 gigawatts gives us commercial confidence as we evaluate the potential for incremental expansion. Our liquidity position has been a strategic differentiator in an industry that has historically prioritized growth without regard to the long-term capital structure. For example, we are one of the few solar companies that both entered and exited this last decade and our strong balance sheet has enabled us to weather periods of volatility and also pursue growth opportunities. Additionally, we were able to self-fund our Series 6 transition whilst maintaining our strong liquidity position, ending 2020 with $1.5 billion of net cash. And just to say, we’ll be able to continue to self-fund future capacity expansion and strategic investments from our technology whilst maintaining a strong differentiated balance sheet, which we believe is a meaningful competitive differentiator. From our profitability perspective, contracted backlog provides increased visibility into future sales, reduces financial exposure to spot pricing for PV module, and helps align our capacity with future demand. Accordingly, we can be selective with our bookings opportunities and contract module sales at pricing levels that fairly value our energy advantage products and provide an acceptable profit per watt. For example, in 2022, although there remains significant uncontracted volume yet to book, the ASP across the aforementioned 5.9 gigawatts of volume for potential deliveries in 2022 is only 10% lower than that of the 7.2 gigawatts of volume to be shipped in 2021. With a target of 11% reduction in cost per watt produced between year-end 2020 and year-end 2021, we believe there’s an opportunity to capture and attract as much. So with this context in mind, I will next discuss the assumptions included in our 2021 financial guidance. Please turn to Slide 14. As it relates to our U.S. project development business, we anticipate that the transaction will close in the first half of 2021, the expected proceeds of approximately $270 million, included in this price of 390 megawatts of Series 4 and Series 6 solar modules, the 10-gigawatt project pipeline, including the five contracted development projects, the 30-megawatt operational Berea project, and certain other Safe Harbor equipment. Upon closing, we expect to recognize a pre-tax gain on sale shown on the income statement between the gross margin and operating income line of approximately $25 million. As it relates to our North American O&M business, we anticipate the transaction will also close in the first half of 2021. Upon closing, we expect to recognize a pre-tax gain on sale of approximately $115 million. We believe that closing these transactions will be a positive result for both our U.S. project development and North American O&M associates. As of the end of 2020, we had approximately 300 associates audited our North American O&M and U.S. project development businesses collectively. And at closing substantially, all of these associates will join Leeward and NovaSource respectively. As we active in North American O&M and U.S. project development, we see the potential for significant cost reduction from this decision, which is reflected in both the cost of sales and operating expenses lines. As we’ve mentioned in prior earnings calls, including Q3 of 2019, and as is also the case in Q4 of 2020, in courses with low project development revenue, we see an adverse impact to system segment gross margin due to the fixed cost burden that sits in the cost of sales line. Similarly for the O&M business, the majority of the non-direct project-related costs to support the O&M business sit within the cost of sales line. In total, in 2021, we expect to see approximately $15 million in annual cost of sale savings associated with the sale of the North American O&M business. An additional approximately $5 million of savings in 2022, we expect run rate annual savings approximately $20 million from the sales in the U.S. project development business. The sale of the U.S. project development business is expected to result in approximately $35 million of savings in 2021, and an additional $10 million to $15 million of run rate savings in 2022 for a total annualized benefit from 2022 onwards of approximately $45 million to $50 million, of which approximately 60% sits in the operating expenses line. From a systems perspective, remaining in our 2021 cost structure are approximately $15 million of expenses associated with our Japanese development business, split between operating expenses and cost of sales, and approximately $15 million of cost of sales associated with our power-generating assets. For the book backlog, system backlog of approximately 200 megawatts AC of systems projects in Japan in a strong path to position will lead that as an opportunity to capture an attractive profit pool around. Next, our 2021 shipments expected to be between 7.8 and 8 gigawatts, which exceeds our production plan for the year of 7.4 to 7.6 gigawatts. There are several factors driving this. Firstly, we produced approximately 1.6 gigawatts in the fourth quarter, which exceeded our guidance from the third quarter earnings call by about 120 megawatts. Secondly, in the fourth quarter, we shipped 1.8 gigawatts, which is a 100 megawatts below the midpoint of our guidance range. Finally, we expect to ship approximately 150 megawatts of Series 6 modules as part of the U.S. project development transaction to a previously intended to Safe Harbor, the 26% investment tax credit. Our ongoing Series 6 throughput and technology programs are expected to impact 2021 operating income by $60 million to $70 million. This is comprised of $5 million to $10 million of ramp expenses incurred of our second factory in Malaysia, which we anticipate will exit as ramp period by the end of Q1. As previously mentioned, we have fleet-wide factory upgrades to incorporate Series 6 plus, CuRe and throughput improvements in 2021. The upgrades will require approximately three weeks of downtime across the fleet, resulting in estimating underutilization losses of $40 million and production startup expense of $15 million to $20 million. We anticipate these improvements will contribute meaningfully to our 8.69 gigawatt production plan in 2022. As it relates to domestic capital markets and financing, the significant utility-scale solar and wind capacity additions expected in 2021 with co-located battery storage increasing many projects for ITC eligible basis, demand for tax equity is expected to remain high. Financial guidance assumes that bank profitability will be sufficient to supply the needs of the tax equity market, or if market conditions deteriorate and appropriate legislative solutions, such as the ability to receive direct cash payments in lieu of investment tax credit, is implemented. Finally, to date, we’ve largely managed the impact of the COVID-19 outbreak on our business, and it does not have significant impact on our operations. Our guidance accordingly seems to continue to be able to mitigate any impacts on our supply chain operation without the incurrence of material costs. I will now cover the 2021 guidance ranges on Slide 15. Our net sales guidance is between $2.85 billion and $3 billion, which includes $2.45 billion to $2.55 billion of module segment revenue. Included in our systems revenue guidance is the sales of Sun Streams 2 project, which closed in Q1. Gross margin is expected to be between $710 million and $775 million, which includes $580 million to $625 million of module segment gross margin. Module segment gross margin includes a combined $45 million to $50 million of ramp expense and underutilization losses, which we expect to reduce module segment gross margin by approximately two percentage points. Additionally, sales freight and warranties are included in the cost of sales, and expected to reduce module segment gross margin by seven to eight percentage points. In the United States, we’re seeing some weather-related impacts to module deliver rescheduled resulting from last week’s storm particularly in Texas. Whilst we’re in the process of balancing customers’ project needs and contractual commitments, we anticipate this will impact our Q1 shipment. However, with lower Q1 sales volume and improving cost per watt profile over the course of the year, we anticipate our module segment gross margin to increase from 19% in the first quarter to 26% in the fourth quarter. Approximately one-third of our full-year ramp and underutilization charges are expected to be incurred during the first quarter, with the remainder split evenly across the subsequent three quarters. The board notes that our sellable volume in 2021 is predominantly Series 6 and Series 6 plus, which is competing for business against bifacial technology. Whilst we are incurring ramp and utilization costs this year to integrate our CuRe technology, we expect to begin realizing the value associated with these improvements in 2022. SG&A and R&D expenses that are expected to total $270 million to $280 million, included in SG&A approximately $5 million of transaction costs related to the sale of our U.S. project development business. Operating expenses, which includes $15 million to $20 million of production startup expenses, are expected to be between $285 million and $300 million. Operating income is estimated to be between $545 million and $640 million and is inclusive of an expected approximately $140 million gain on sale related to the aforementioned O&M and project development transactions and $60 million to $70 million of combined ramp and underutilization costs and startup expenses. Turning to non-operating items, we expect interest income, interest expense, and other income to net to negative $10 million. Full year tax expense is forecasted to be between $100 million and $120 million, which includes approximately $35 million of tax expense related to the North America O&M and U.S. project development sales transactions. This results in next full year 2021 earnings per share guidance range of $4.05 to $4.75. Now, we expect earnings per share of approximately $1 related to the gains on sale by U.S. project development and North American O&M businesses. Capital expenditures in 2021 are expected to range from $425 million to $475 million, as we complete the transition to our second Series 6 factory in Malaysia, increased throughput, our existing Series 6 facilities, implement Series 6 plus and CuRe and invest in other R&D related programs. Our year-end 2021 net cash balance is anticipated to be between $1.8 billion to $1.9 billion. The increase in our 2020 year-end net cash balance is primarily due to operating cash flows on module business, proceeds from our U.S. project development and North American O&M sales, which we expect will partially offset by capital expenditures. Turning to Slide 16, and I’ll summarize the key messages from today’s call. We continue to make significant progress in our Series 6 transition from a demand and supply perspective. Series 6 demand remains robust with 3.3 gigawatts of net bookings since the previous earnings call, in addition to 1.4 gigawatts of volume contracted subject to conditions precedent. Our opportunity pipeline continues to grow with a global opportunity set of 19.7 gigawatts including mid to late-stage opportunities of 12.6 gigawatts. On the supply side, we continue to expand our manufacturing capacity and expect to increase our nameplate Series 6 manufacturing capacity to 8.7 gigawatts by year end 2021 and 9.4 gigawatts by year end 2022. In 2021, we expect to produce 7.4 to 7.6 gigawatts of Series 6 volume, a year-over-year increase of 25% to 29%. We see significant midterm opportunity for improvements to our module efficiency, costs, and energy metrics. We ended 2020 with full year EPS of $3.73, and are forecasting full year 2021 earnings per share of $4.05 to $4.75. Finally, we expect the close of sale of our North American O&M and U.S. project development businesses in the first half of 2021. And with that, we’ll conclude our prepared remarks and open the call for questions.

Our first question comes from Philip Shen with ROTH. Your line is open.

Hey guys, thanks for taking my questions. You’ve shown some healthy bookings year-to-date. Given the forced labor issue ramping up, can you talk about how recent conversations with customers have shaped up and perhaps how they’ve shifted as well? And then looking out to 2022, when do you expect that could become fully booked? It looks like you’re two-thirds there, and then what about the outlook for 2023? And then in terms of your recent bookings, you talked about, I think, a 10% reduction in pricing from 2020 levels, which might suggest that your 2022 bookings that you gained or booked recently are in the $0.30 per watt range. So I was wondering if you could comment on that or if they might be closer to the mid-$0.20s per watt, which is I think certainly possible in what some market participants have been sharing with us in terms of market pricing for crystalline silicon. So I know there’s a lot there. Thank you very much for the questions.

All right. So I'll help to get to all three of them. With on booking, we’re real happy with the momentum. Just if you even look at the mid-to-late stage opportunities that we expected, we have over 12 gigawatts sitting there. The momentum we’re starting off with right now leads us to expect 2022 to be a very strong booking year. As it relates to the discussion and comments around implications of forced labor, I think we try to hit on some of those themes. It’s probably just an interesting one particular issue, but it goes back to this concept that we refer to as responsible solar. There are clearly a number of counterparties and customers that we engage with who have concerns about over-reliance, the current state of political relationships between the U.S. and China, or India and China, or other markets as well. As a result of that, they’re looking for alternatives. One thing that’s great about First Solar is not only do we have great technology and capabilities, but we have a different standard which we hold ourselves accountable for. We have different value attributes that we can provide to our customers. Certainty is one, dealing with a counterparty or a supplier who holds themselves to the highest integrity and ethics standards. I think it’s important and we are starting to see that reflected in our bookings and the pipeline. That said, there are many who are trying to understand the implications of the forced labor issues and how it will play out. However, I will tell you that some of the end customers that we have, not referring here to the IPPs or developers or VPCs, but others with more of the off-take agreements, they’re very concerned. In some cases, they are incorporating conditions within their procurement criteria to ensure that there’s a zero tolerance for forced labor. They want to ensure that in the projects they may have in the U.S. or elsewhere, the suppliers have zero tolerance as well, and that forced labor is not tolerated anywhere through their entire supply chain. As for our goals, we clearly want to be sold out for 2022 by the end of this year. We want to be more than halfway sold out for 2023 and have a meaningful proportion of our volumes contracted for 2024. So when you look at where we are right now, we’re in a pretty good position for 2022, but we still have more work to do. Our Chief Commercial Officer keeps pushing us to sell, sell, and take every opportunity we can. We’re pleased with the pipeline and the resiliency we see, which we hope will allow us to achieve our goals. Our goal is certainly higher than the historical one-to-one sold-to-book ratio. We feel confident we can reach that. As for ASPs, if you look at the Q, when it comes out or the K, it will show an average of around $30.80. The metrics will confirm that. I wouldn’t say that we’re starting to see increases in ASPs that are reflected in what we’re observing. We are starting to see independents looking at ASPs firming up, and may start to see some upward resilience as well. Overall, we are very pleased and happy with the ASPs we’ve captured relative to the value we create with our technology while maintaining solid gross margins. More importantly, our sole dimes, year-on-year, will be up significantly as well, creating contribution margins that expand operating income.

Our next question comes from Brian Lee with Goldman Sachs. Your line is open.

Thanks for taking the questions. I had two here. I guess first, Mark, can you – of the 1.1 gigawatts of systems, I think you talked about this, but how much is targeted to be sold this year, next year, and then presumably 2023 will be the last year where you see some systems business revenue. And how much in that year? And then the gross margins, I know they depend a lot on the mix, but it seems like if we back up the components, where you’re doing pretty well it’s about a high-single-digit, low-teens number implied for this year. Is that going to be kind of the go-forward margin level? I would’ve thought it’d be a little bit higher given Sun Streams made it into 2021 versus 2020, but any thoughts around mix implications for margins and how to think about margins for that business as you still have some revenue to monetize over the next couple of years. Thanks, guys.

Yes, I’ll take the first one, Brian, and I’ll let Alex tackle the questions on gross margin, as it relates to the systems business. The 1.1 is largely the U.S. assets that we still have. Sun Streams has contracted. The rest of the Sun Streams is complex; we’ve signed, but haven’t finalized what portions we signed up. Another portion hasn’t signed yet. The plan would have all that done, hopefully by the end of the quarter. I would estimate the U.S. volumes aggregating up to around 600 megawatts or something close to that. There are a few hundred megawatts left in the U.S., which our plan would be to move forward as quickly as possible. Ideally, we want to have all that sold out by the end of this year. The development team is going with the transaction, so we don’t have the capabilities really to continue with development activities. We’ll have to enter into a service agreement effectively with Leeward to continue to support those projects until they’re sold down. The balance though there is still 200 or 300 megawatts of contracts in Japan projects and there’s still more that’s not contracted at this point in time. We have feed-in tariffs, but we haven’t fully accomplished the permitting process and interconnection that would ultimately require for a recollecting of a booking. That volume will be recognized—most of it will show up in 2023; there’ll be some in 2021 and 2022. But looking at the CODs, most of them had 2023 CODs as we currently see them. The bookings—excuse me, the average ASPs on those projects are highly attractive. We’ll monetize that over three years and we’ll see if we can go beyond that. Again, there are still additional projects with tariffs that we haven’t booked yet that could potentially create more volumes into 2023 and even into the 2024 period. But I’ll let Alex talk about the gross margin.

Yes. So Brian, if you look at the guidance we gave, total revenue of $2.85 billion to $3 billion, of that, modules are at $2.45 billion to $2.55 billion, which implies systems of $400 million to $450 million of revenue. On the gross margin side, on the $710 million to $785 million company-wide and module of $580 million to $625 million, so again implies systems $130 million to $160 million. If you look at those gross margins, it’s 25% to 26% at the company level; systems looks pretty high, but it’s really very limited volume. Systems is in low 30's skewed a bit by Sun Streams and potentially a little bit of Japan coming in at the backend of the year. The module that comes in at about 24% to 25%, so that’s where you’re seeing module gross margins for the year. As you’re talking about how to look at that going out, we tried to provide a little color here. On the gross margin level, we talked about the ASP decline and what we’ve got booked. If you consider 2022, there are still a lot of bookings left, but we have a significant amount already contracted. If you look at current ASP declines, 2021 and 2022 goes down about 10% and then costs decline 11%. Now those are off different bases, obviously on an ASP and a cost per load. As you can see we’re getting costs coming down relatively better than ASP declines moving from 2021 to 2022 due to increased volume, which can also dilute fixed costs and drive operating margins. We’ve discussed some cost reductions that will come out from the sale of O&M and product development. Some of that will filter through in 2021, but there’s also a trickle-down effect into 2022. So that’s going to continue down to operating margins as we go into 2022.

One thing I want to add to that, Brian, Alex mentioned in his comments is there’s a pretty significant headwind in 2021 for underutilization in order to deal with the upgrades that we need to do primarily for CuRe. So there’s a significant cost, I think it’s about $40 million of underutilization that we’ll have to absorb within 2021. If you adjust for that, I think gross margin could go up a couple of percentage points into that range.

Our final question will come from Ben Kallo with Baird. Your line is open.

Thank you for making time for me. I kind of want to boil it all down. So, I heard you say several different things about gross margin improving. You said the ASP is firming up, you’re much locked into 2022. So if I go to 2022 EPS should be up, right? And then my second question is, I guess, Alex, when you build a new factory, how do you determine whether or not you have the ROIC on that? I guess there’s probably a margin associated with that. So you have to have some kind of firm belief in your long-term contracts to invest that money. Those are my two questions.

Yes, I don’t think, first of all, that Alex said. Ben, we’re not giving guidance for 2022 at this point, but we did provide some strong indicators of what will drive 2022, which will be volume, production volumes as we referenced, the new product CuRe and its energy profile. I want to keep making sure that’s represented; in all of 2022, the volume will be CuRe. If you look at the one slide, it shows energy uplift—there’s a meaningful energy uplift because of the improvement of long-term degradation. We sell energy back. So that is important to understand. We also referenced that there was a lot of interest, rightfully so, when bifacial modules came out, and they talked about a 4% to 8% energy uplift relative to monofacial modules with similar efficiency. If you look at where we are with our pure product, and on average lifecycle, the top of initial Tesco and efficiency pop, there’s another 10 percentage points lifecycle energy improvement through long-term degradation. And so you can take our products and even compare them to crystalline silicon bifacial modules that have a nameplate around 150 or 175 bps better efficiency and you’re going to find our lifecycle and energy profile will outperform that in the range of call it 4 to 6%. And that’s compiling value fruition.

Ben, I think about ROIC across both individual factories and on a company-wide basis. If you think about the individual factory gross margin target, depending on volume sold, is more of it sold outside the U.S. today, and as we expand, you may see that gross margin level going down, being more challenging relative to the current book volume. But at the same time, adding a factory adds limited to no OpEx and actually has a slight benefit by diluting from fixed costs into cost of sales. So therefore, on an operating margin benefit, anything that factory could look better, because it impacts not just an individual factory, but also the fixed costs and the volume that comes from it. For you to build a new factory, it’s key to ensure that it generates a sufficient return on invested capital. We’ve made sure that we can reach that expectation.

We have reached the end of our time for the question-and-answer session. This concludes today’s conference call. You may now disconnect.