First Solar, Inc. Q1 FY2021 Earnings Call

Good afternoon, everyone, and welcome to First Solar's First Quarter 2021 Earnings 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 first quarter 2021 financial results. A copy of the press release and associated presentation are available on First Solar's website at investor.firstsolar.com. With me today are Mark Widmar, Chief Executive Officer, and Alex Bradley, Chief Financial Officer. Mark will begin by providing a business and technology update. Alex will then discuss our financial results for the quarter and provide updated guidance for 2021. Following the 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, 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 thanking the First Solar team for delivering a solid first quarter. Our operational and financial results were strong, and market demand for our Series 6 technology continues to be robust. Operationally, our second Series 6 factory in Malaysia exited its ramp period. Nameplate manufacturing capacity has increased to 7.9 gigawatts, and we're now consistently producing 455 watt modules. Commercially, we have secured 4.8 gigawatts of year-to-date net bookings, which include 2.9 gigawatts since the previous earnings call. Financially, we reported module segment gross margin in line with our Q1 guidance and earnings per share of $1.96, which includes the completion of our US project development and North American O&M business sales. Overall, I'm pleased with our strong start to the year, which has positioned us to deliver our annual earnings per share guidance. Turning to Slide 3, I will provide an update on our Series 6 capacity ramp and manufacturing performance. Despite unplanned downtime caused by winter storms in Ohio and a temporary logistics-driven billing material shortage in Malaysia, along with planned downtime for throughput and technology upgrades, which combined adversely impacted cost per watt by approximately half a penny, we delivered strong manufacturing results for the first quarter. On a fleet-wide basis in March and in April month-to-date, megawatts produced per day was 20.2 and 22, representing a 17% and 27% increase compared to December 2020. Capacity utilization was 92% and 99%, despite being impacted by the aforementioned planned and unplanned downtime. Manufacturing yield of 96.7% and 97.4% continues to show strength in light of the ramp of our second Series 6 factory in Malaysia, which achieved manufacturing yields of approximately 93% and 97%. As previously mentioned, we started commercial production of our 455 watt module, and both our factories in Malaysia and our fleet-wide average watt per module improved to 442 and 445 watts, respectively. This manufacturing performance has been a key driver of our cost per watt reduction and gives us further confidence as we execute on our cost reduction roadmap. It's also important to put our recent performance into context. Comparing April of 2019 to April of 2021, month-to-date our average watt per module has increased by 26 watts. Megawatts produced per day has increased by 144% and manufacturing yield has increased by 9 percentage points. I'm pleased with what the team has accomplished. However, as we drive towards our mid-term goal of 500 watt module, increasing throughput by 12% compared to re-rated capacity utilization baseline and increasing manufacturing yield to a mid-term target of 98.5%, we have an opportunity to significantly reduce costs through disciplined manufacturing. As a company, we have demonstrated disciplined execution and agility throughout the startup and ramp of our Series 6 factory, including gathering new learnings from each factory rollout and utilizing them in the next. This culture of continuous improvement enables us to increase implementation velocity and reduce our ramp period. While it took our first Series 6 factory in Ohio approximately 22 months to achieve throughput in line with its nameplate entitlement, our newest factory exited its ramp period in only one month's time. The consistent improvement of our factory limitation process gives us operational confidence as we evaluate the potential for future capacity expansions. We believe that the combination of differentiated technology and a balanced business model of growth, liquidity, and profitability is a competitive differentiator and will continue to enable our success. Three years ago in April 2018, we commenced commercial production at our first Series 6 factory, and today we have established a Series 6 factory footprint through which we have the potential to reach our 10 gigawatts of nameplate capacity based on our existing efficiency and throughput plans. Looking forward, strong demand for Series 6, a compelling technology roadmap, a strong balance sheet, and a largely fixed operating expense cost structure, are key catalysts as we evaluate the potential for future capacity expansions, though we've made no such decision at this time. We are targeting to make a determination by our Q2 earnings call. From the shipping and logistics perspective, we are experiencing port congestion in the United States along with logistics challenges stemming from February's winter weather events in Southern United States. As a result, certain module deliveries planned for the first quarter were delayed, and given ongoing port congestions, we see potential for similar delays in the second quarter, which could result in delays in module recognition. While the cost per watt of PV modules has declined significantly in the past decade, sales freight has largely remained fixed on an absolute dollar basis. As a result, sales freight has become a more meaningful percentage of the cost per watt. For example, in Q4 last year and Q1 of this year, sales freight and warranty reduced our module segment gross margin by 7% and 8%, respectively. This highlights for markets with large recurring demand, such as the US, India, and Europe, the importance of having in-country or in-region manufacturing, which helps significantly reduce the cost of sales freight. As initially highlighted during our February earnings call, we continue to anticipate elevated shipping rates in 2021. We continue to partially mitigate the impact via the implementation of several initiatives. Firstly, as we improve module efficiency, we benefit from an increase in watt per shipping container and reduced sales freight. Secondly, as we implement Series 6 Plus, we will reduce the profile of our frame and junction box by approximately 10%, enabling an increase in the number of modules per shipping containers. Thirdly, we intend to expand our distribution network footprint in the United States, which we anticipate will increase domestic inventory buffers, further reduce exposure to spot shipping rates, and provide greater flexibility while reducing shipment timing risk for our customers. Implementation of these initiatives is important in order to help mitigate the effects of the challenging shipping market and achieve our 2021 cost per watt reduction objective. From a supply chain perspective, our strategy emphasizes long-term agreements that reduce exposure to spot pricing for commodities and raw materials. For example, our glass procurement strategy primarily relies on fixed price contracts and partnerships with domestic suppliers. This approach helps de-risk the value of our contracted backlog and provides greater certainty that we will be able to meet our expected profitability. Our tellurium strategy is similar; we secure our supply needs through multi-year fixed price agreements while driving to reduce CdTe usage per module through optimization of our vapor deposition processes. While tellurium is a key component of our semiconductor material, it is a minor component of our cost per watt, given our CdTe thin film is 3% the thickness of a human hair. Also, as part of our global high-value PV recycling program, we're able to establish a circular economy by recovering more than 90% of the semiconductor material for use in new First Solar modules. Although such recycling on a large scale is still anticipated to be many years out, given expected usage for our modules, this has the potential to significantly reduce our ongoing tellurium and cadmium needs in the future, once power plants using First Solar modules reach the end of their useful life. Aluminum, which is used in the construction of our frame, has recently experienced a price increase to above pre-pandemic levels. While the hedging structure we put in place has partially mitigated this impact, we anticipate some cost challenges related to aluminum during the year. However, part of our Series 6 Plus implementation will anticipate reducing our frame's profile and aluminum usage by 10%, which we expect will mitigate a portion of this cost increase. Finally, despite the previously mentioned delays of certain module deliveries in Q2 and as a result of our continued manufacturing execution and aforementioned risk-reduced supply chain approach, we achieved our module segment gross margin target in Q1. Additionally, due to the cost reductions for certain billing materials, we're tracking to achieve our targeted 11% cost per watt produced reduction between where we ended 2020 and expect to end 2021, while we intend to mitigate much of this impact related to the challenging shipping market. Our revised target for cost per watt sold reduction is 6% to 7%. Turning to Slide 4. In Q1, we completed the sale of our contracted Sun Streams 2 and uncontracted Sun Streams 4 and 5 projects to Longroad Energy. In April, we completed our uncontracted Sun Streams 3 project to Longroad as well. Across these four projects, Longroad intends to utilize approximately 1 gigawatt of Series 6 modules, of which 785 megawatts represent new bookings since the last earnings call. As it relates to our systems business in Japan, our existing team and competitively advantaged core project development skill set of siting, permitting, interconnection, and securing long-term feed-in tariff contracts has positioned us well in the market. Today, we have an approximately 320 megawatts systems backlog in Japan, which includes 55 megawatts of new bookings since February's earnings call. This backlog reflects our recent success, averaging approximately 100 megawatts per year in systems bookings in Japan between 2018 and 2020. Looking forward in the near term, we have an opportunity to add to this backlog with approximately 40 megawatts of Japan's system opportunities, with feed-in tariff rights secured, pending satisfaction of certain permitting requirements. Across the total portfolio, we have the potential to capture approximately $260 million of gross margin in the next three to five years with an approximately $15 million per year overhead cost structure. We anticipate the sell-down of systems projects in Japan will contribute meaningfully to our mid-term operating income. With the national commitment to carbon neutrality and limited domestic energy generation, the market fundamentals in Japan are favorable for the continuing growth of solar. We continue to build a pipeline of post-feed-in tariff opportunities that could target feed-in premiums or corporate PPA opportunities as the market matures. Before discussing our most recent bookings and top-line opportunities, I would like to discuss several domestic and international policy updates. At the end of March, President Biden unveiled an infrastructure proposal that emphasized transit, revitalizing power grids, and vastly expanding clean energy while creating millions of jobs and positioning the United States to outcompete China. Additionally, the plan is intended to revitalize domestic manufacturing, secure the US supply chain, invest in R&D, and train Americans for jobs of the future. This is the most far-reaching federal proposal for programs that curb greenhouse gas emissions and address climate change. As the only alternative to crystalline silicon technology among the 10 largest solar module manufacturers globally, and with a premier vertically integrated manufacturing process and differentiated CdTe cell technology, we're uniquely positioned to support domestic energy independence in the United States and play a leading role in this plan. We are the largest solar module manufacturer in the United States and directly employ over 1,600 US-based associates. Our domestic supply chain supports thousands of indirect jobs. For example, we procure our float glass from an NSG facility approximately 10 miles from our factory in Perrysburg, which has the first new float glass line in the United States in 40 years. As a result of this investment, NSG has created long-term and high-quality manufacturing jobs and a domestic supply chain of their own. NSG soda ash, which is the primary material used in glass manufacturing, is procured from suppliers in Wyoming, which is the state that has historically been the largest producer of coal. The pace of innovation is core to our success. This starts at our R&D lab facilities in Silicon Valley and Ohio. As a reflection of this commitment, since our IPO, we have cumulatively invested over $1.4 billion in research and development as the only thin film module manufacturer of scale. With the manufacturing process that is handled entirely in each of our six factories, we own the end-to-end intellectual property and trade secrets for our CdTe cell technology. We believe the remaining nine largest PV module manufacturers all utilize the same semiconductor material. Additionally, none of these manufacturers are fully integrated, relying on varying degrees on third-party sourcing and intellectual property of upstream polysilicon ingot, wafer, and cell manufacturers. While it's difficult to measure the value of the vast subsidies that the Chinese solar industry receives, these subsidies serve to artificially deflate our competitors' cost per watt, resulting in a marketplace that undervalues innovation and where technologies do not compete solely on their own merits. Despite this apparent and outrageous lack of fair trade, the advantages of our vertically integrated manufacturing process and differentiated CdTe cell technology, leading to what we believe to be the lowest module manufacturing cost structure in the industry, will continue to empower our success. With the Section 201 tariffs currently scheduled to expire in February of 2022, the Biden Administration has a natural window to pursue policies that address the root cause of the problem: China's unfair trade practices. Accordingly, we continue to advocate for an industrial policy that identifies clean tech manufacturing as a national strategic priority to advance US energy independence. We believe that this type of policy would be promoted through incentives for domestic manufacturing, continued investment in advanced technologies, domestic sourcing, and tariff reform. Turning to Slide 5, I'll next discuss our most recent bookings in greater detail. Leading corporate buyers have expressed concerns that due to the decentralized nature of the crystalline silicon supply chain, they're unable to ensure that the solar modules and their systems from which they buy power were not manufactured using forced labor. While our Series 6 energy efficiency and environmental advantages are all key differentiators, customers increasingly value our vertically integrated manufacturing process, supply chain transparency, and zero tolerance for the use of forced labor in our manufacturing process and supply chain. While the pricing environment remains competitive, these catalysts have created bookings momentum for deliveries in 2022, 2023, and beyond, with customers seeking to de-risk their projects. Accordingly, we're pleased with our strong year-to-date net bookings of 4.8 gigawatts, which includes 2.9 gigawatts since the February earnings call. After accounting for shipments of approximately 1.8 gigawatts during the first quarter, our future expected shipments, which extend to 2024, are 14.8 gigawatts. Included in our 1.8 gigawatt shipments are approximately 0.2 gigawatts of Series 4 that were previously shipped to secure the Investment Tax Credit but were transferred to a third-party during the quarter in conjunction with the sale of our US project development business. Accordingly, our comparable Q1 shipment number is approximately 1.6 gigawatts, including 4.8 gigawatts of year-to-date bookings and 0.4 gigawatts of upside volume related to a previously announced purchase order from Intersect Power. We're largely sold out for 2021, have 6.4 gigawatts of potential deliveries in 2022, and 3 gigawatts across 2023 and 2024. Overall, the market remains competitive, and we're pleased with the pricing levels that we're securing in 2022 and 2023 for our Series 6 Plus and CuRe products. Although there remains uncontracted volume yet to be booked, the ASP across our aforementioned 6.4 gigawatts of volume for potential deliveries in 2022 is only 11% lower than the volume to be shipped in 2021. Slide 6 provides an updated view of our global potential bookings opportunities, which now total 16.5 gigawatts across early to late phase opportunities through 2024. In terms of geographical breakdown, North America remains the region with the largest number of opportunities at 12.9 gigawatts. Europe represents 1.2 gigawatts, India represents 1.2 gigawatts, and South America represents 0.7 gigawatts, with the remainder in other geographies. As a subset of this opportunity is our mid-to-late-stage bookings opportunity of 7.8 gigawatts, which reflects those opportunities we feel could be booked within the next 12 months. The subset includes approximately 5.4 gigawatts in North America, 1.2 gigawatts in India, 0.6 gigawatts in South America, 0.3 gigawatts in Europe, and the remainder in other geographies. Note, this represents victories from our prior earnings call, which is largely due to our recent bookings momentum. Finally, note, included in the 720 gigawatts is a 1 gigawatt order for a US customer that just hours ago we booked. Including this booking in our contract for future shipments, it is just shy of 16 gigawatts. I'll now provide an update on our technology roadmap. As previously disclosed, we launched our Series 6 program, leveraging our existing Series 6 toolset, which increased our module form factor by approximately 2% and our top production bin by approximately 10 watts. Before we implemented this program, our newest Series 6 factory in Malaysia, which is now consistently producing 450 watt modules, and we remain on track for fleet-wide implementation of Series 6 Plus in the fourth quarter of this year. As previously announced, our Series 6 CuRe modules offer an industry-leading 30-year 0.2% annual warranty degradation rate, which is up to 60% lower than conventional crystalline silicon products. Additionally, we anticipate improving module efficiency, enabling a top production bin of 460 to 465 by the end of 2021. We anticipate this lower degradation rate, combined with improved temperature coefficient and spectral response, will build upon our existing energy advantages, especially in hot and humid climates. As previously indicated, CuRe significantly increases the Series 6 competitiveness against bifacial modules. As a result of the aforementioned advantages, as compared to a leading crystalline silicon bifacial module, we estimate that our CuRe module can produce up to 10% more lifecycle kilowatt-hours per kilowatt installed in certain climates with extreme heat and humidity. Finally, we remain on track to implement CuRe in a lead line by the fourth quarter of this year, and fleet-wide by the end of the first quarter of next year. As part of our R&D efforts, our CuRe program successfully removes copper from our CdTe vapor deposition process. This enhances the long-term stability of our CuRe modules, and based on initial performance in the field, an accelerated life test demonstrates a near-zero annual degradation rate. Given PV power plants have useful lives of approaching 40 years, a reduction in the annual degradation rate can contribute to significantly higher lifetime energy production. CuRe, along with First Solar's other industry-first and only product warranty that specifically covers power loss from cell cracking, are recent examples of innovations that enhance our competitive position in the market. Finally, we are continuing to evaluate the potential to leverage the high-bandgap advantages of CdTe in a tandem or multi-junction device. A tandem device has the potential to be disruptive, allowing high efficiency, low cost, and an advantageous energy generation profile, leveraging many of the innovations in our CdTe cell technology roadmap. Additionally, we believe thin film semiconductor will be the key differentiator to achieve the highest performing tandem PV module. And now, I will turn the call over to Alex, who will discuss our first quarter financial results and 2021 guidance.

Thanks, Mark. Starting on Slide 7, I'll cover the income statement highlights for the first quarter. Net sales in Q1 were $803 million, an increase of $194 million compared to the prior quarter. This increase in net sales is primarily due to an increase in systems revenue driven by the sales of the Sun Streams 2, 4, and 5 projects. On a segment basis, our module segment revenue in Q1 was $535 million compared to $548 million in the prior quarter, which was given assumptions for projects within construction at the time of sale; the majority of the module sales were recognized in the systems segment. Gross margin was 23% in Q1 compared to 26% in Q4 of 2020. Systems segment gross margin was 31% in Q1 compared to 18% in Q4 of 2020, and this increase was primarily driven by the aforementioned project sales in Q1. Despite the aforementioned delays in certain module deliveries as well as higher expected logistics costs, our Q1 module segment gross margin was 19%, which was in line with the guidance we provided on the prior earnings call. Our module segment gross margin in Q1 includes $1 million of charges associated with the initial ramp of manufacturing in Malaysia and $4 million of underutilization expense stemming from planned downsized throughput technology upgrades. Ramping underutilization expense reduced module segment gross margin by approximately 1%. As a reminder, sales freight and warranty are included in our cost of sales and reduced module segment gross margin by 8 percentage points in Q1 compared to 7 and 6 percentage points in Q4 and Q3 of last year. Despite utilizing contracted routes, minimizing changes, and using a distribution center, we incurred higher rates during Q1 due to constrained container availability in the global shipping market. SG&A, R&D, and startup expenses totaled $72 million in the first quarter, a decrease of approximately $13 million compared to the prior quarter. This decrease is primarily driven by a $6 million decrease in development project impairment charges between Q1 and Q4 of 2020, and lower share-based compensation expense in Q1, which was partially offset by $2 million in liquidated damages related to US development assets in Q1. Production startup expenses totaled $11 million in the first quarter, a decrease of $5 million compared to the prior quarter. This decrease is driven by the start of production of our second Series 6 factory in Malaysia in February. We also acknowledge the widespread use of non-GAAP financial measures across financial markets. We recognize the certainty and comparability that consistently providing historical financials and guidance on a GAAP basis offers compared to analysts and investors. However, we also appreciate the need to understand non-cash and certain one-time costs in calculating valuation metrics, and will therefore, as appropriate, continue to highlight many of these items. In this context, Q1 operating income is $252 million, which included depreciation and amortization of $63 million, share-based compensation of $3 million, ramp underutilization, and production startup expenses totaling $16 million, with a gain on the sale of our US project development and North American O&M businesses at $151 million. In Q1, we realized a $12 million gain on the sale of certain marketable securities associated with our end-of-life module collection recycling program within the other income line on the P&L. We recorded a tax expense of $46 million in the first quarter compared to a tax benefit of $66 million in the prior quarter, with the increase in tax expense in Q1 attributable to an increase in pre-tax income and a discrete tax benefit in Q4 of 2020, totaling $61 million, associated with the closing of the statute of limitations on certain positions. The combination of the aforementioned items resulted in a first quarter earnings per share of $1.96 compared to $1.08 in Q4 of 2020. Turning to Slide 8 to discuss balance sheet items and summary cash flow information. Our cash, cash equivalents, marketable securities and restricted cash balance ended the quarter at $1.8 billion, which was largely unchanged compared to the prior quarter. Several factors impacted our quarter-end cash balance. Firstly, while we completed the sale of our US project development business and certain equipment on March 31 for an aggregate transaction price of $284 million, the proceeds from the transactions were received in early April. Secondly, as previously mentioned, we sold certain restricted marketable securities associated with our end-of-life collection recycling program, fetching total proceeds of $259 million. While we intend to subsequently reinvest these proceeds, as of quarter-end, they were included on the balance sheet as restricted cash. Thirdly, though we also completed the sale of our Sun Streams 2, 4, and 5 projects during the quarter, due to the contemplated payment structure, the closing of these transactions did not have a significant impact on our quarter-end cash balance. Finally, the proceeds received from the sale of our North American O&M business were offset by operating expenses and capital expenses in Q1. Total debt at the end of the first quarter was $257 million, a decrease of $22 million from the end of Q4. This decrease was driven by the payment of loan balances matured during Q1 and partially offset by loan drawn down from projects in Japan. As a reminder, all of our outstanding debt continues to be project-related and will come off our balance sheet when the corresponding project is sold. Our net cash position, which includes cash, cash equivalents, restricted cash, and marketable securities less debt, increased by approximately $25 million to $1.5 billion as a result of the aforementioned factors. Net working capital in Q1, which includes non-current project assets and excludes cash and marketable securities, increased by $423 million compared to the prior quarter. This increase was primarily driven by a $472 million increase in accounts receivable related to our US project development business and our Sun Streams 2 sales, which was partially offset by a decrease in project assets. Net cash used by operating activities was $279 million in the first quarter, which includes the aforementioned increase in accounts receivable related to the payment timing of our US project development business and Sun Streams 2 sales. Finally, capital expenditures were $90 million in the first quarter compared to $89 million in the prior quarter. Continuing on Slide 9, I'll next discuss 2021 guidance. Our Q1 earnings provided positive indications for the year, but we are leaving our EPS guidance unchanged for the time being, largely due to the following reasons. Firstly, as of the time of our prior earnings call, we anticipated recognizing a gain on the sale of our US project development and North American O&M businesses of $135 million to $150 million. At closing, we recognized a pretax gain of $151 million. Secondly, the fifth round of our second Series 6 factory in Malaysia quickly exited its ramp period. As a result, we anticipate a reduction in our full year ramp expenses, which we expect will be partially offset by an increase in production startup expenses. Thirdly, we also have strategies in place to mitigate the potential negative effects of higher costs, including sales freight and aluminum. The functions of these costs and our mitigating strategies are reflected in our 2021 guidance. Finally, in our February earnings call, we anticipated sales freight would reduce our full-year 2021 module segment gross margin by 7 to 8 percentage points. However, we currently anticipate that sales freight will reduce our 2021 module gross margin by 7.5 to 8.5 percentage points, a 50 basis points increase from the prior earnings call. While the hedge we put in place mitigated some of the effect of high commodity prices, uncertainty relating to future costs is also considered in the low end of our guidance range. While we are facing near-term cost challenges predominantly related to sales freight, our confidence regarding our previously disclosed mid-term cost per watt reduction roadmap remains unchanged. With these factors in mind, we are updating our 2021 guidance as follows: our module segment revenue guidance remains unchanged at $2.45 to $2.55 billion. Our updated net sales guidance is $2.85 billion to $3.025 billion, reflecting a $25 million increase to the high end of our systems revenue guidance. Our module segment gross margin guidance is $565 million to $615 million, which represents a $15 million and $10 million reduction, respectively, to the low and high end of our previous guidance range. This revision reflects our current expectations related to commodity and sales freight costs, which is partially offset by a reduction in ramp-related expenses. Note that the results of these costs anticipate our Q4 module segment gross margin at approximately 25%. This anticipated module segment gross margin includes $10 million of underutilization expenses related to factory upgrades, which is expected to reduce module segment gross margin by approximately 2%. We also anticipate approximately 60% of our module segment gross revenue for the year will be recognized in the second half of the year. Our updated system segment gross margin guidance is $130 million to $160 million, reflecting a $10 million increase to the high end of the range due to the potential recovery at system costs, a portion of which we've already received. We anticipate the majority of our remaining full year systems segment revenue and gross margin will be recognized in the second half of the year. Otherwise, total gross margin is $695 million to $757 million, reflecting a $15 million decrease to the low end of the range. SG&A and R&D expenses have been lowered by $5 million to a range of $265 million to $275 million. Production startup expenses have increased by $5 million, and as a result, our operating expense guidance range of $285 million to $300 million is unchanged. Operating income guidance is $535 million to $640 million and is unchanged. It includes anticipated depreciation and amortization of $263 million, share-based compensation of $21 million, ramp underutilization and production startup expenses totaling $61 million to $66 million, and a gain on the sale of our US project development and North American O&M businesses of $151 million. Our tax guidance of $100 million to $120 million is unchanged and includes approximately $34 million of expenses related to the sale of our US project development and North American O&M businesses. Our earnings per share guidance remains unchanged at $4.05 to $4.75, and our net cash, capital expenditures, and shipments guidance also remain unchanged. Turning to Slide 10, I'll summarize key messages from today's call. Financially, we had a strong Q1 EPS of $1.96, with our module segment gross margin in line with our Q1 guidance, and we reiterated our 2021 EPS guidance range of $4.05 to $4.75 per share. Operationally, our second Series 6 factory exited its ramp period and our nameplate manufacturing capacity increased to 7.9 gigawatts. Additionally, as a result of continued execution, we're on track to achieve our targeted 11% cost per watt produced reduction between the end of the fourth quarter of 2020 and the end of 2021. Finally, Series 6 demand has been robust, with 4.8 gigawatts of year-to-date net bookings, which includes 2.9 gigawatts since the previous earnings call. And with that, we conclude our prepared remarks and open the call for questions.

Your first question is from Philip Shen with ROTH Capital.

The first one is on pricing. I know Mark, you gave some detail on the decrease of 11% year-over-year in 2022 with the bookings you have. But crystalline silicon pricing is up meaningfully, our checks are for pricing at $0.35 to $0.38 level at the spot market. How is that impacting your discussions? How much of that can you benefit from? And then just my second question here as it relates to capacity. Was wondering if you could provide a little bit more color. India was on the roadmap for a bit; with COVID problems there, I can imagine India is off the table. So what variables are you using and thinking about as you consider locking in for expansion? Do you need more clarity from the Biden Administration? I know it's going to come in Q2, but some initial color there would be fantastic. Thanks.

Phil, first on the pricing environment. Clearly, we've seen pricing increase, and as we look across the horizon, whether there is much volume occurring. But to the extent we had available US supply, you will see from our pricing. However, your eventual look across the horizon and into 2022, 2023, and 2024 shows that there are projects that people have bid under significant pressure from all dimensions. Ultimately, it all comes down to affordability, although there are going to be a number of these projects that just won't happen because of the general cost pressures that they're seeing, with commodity cost pressures like steel, aluminum, copper going up, along with labor costs under pressure as well. It's pretty strange in all these projects, and one of the things we've got to be mindful of is that we price across the horizon. It has to fundamentally work within the customers' pro forma; their financials have to work. So, to try to go out and capture the highest potential price point, I'm not sure it's going to serve us best when it comes to ensuring the viability of the project. So we have been trying to work with capable, well-financed counterparties and ensure high certainty and quality of execution of the projects, which shapes our views around certainty of execution, making sure the economics and pricing works. The other thing I would say that falls into the equation is our confidence around our cost reduction roadmap. In looking at our cost reduction roadmap, we are very happy with where we are and the opportunities still in front of us to meaningfully drive costs down from where they are right now. The one piece of the cost structure that is not as robust as we would like is sales freight, but as we look forward into these new contracts, we're putting variable structures around sales freight such that we're not carrying that risk profile. The customer is going to share in that cost, and to the extent the sales freight environment remains similar to where it is now, then there will be cost pass-through, presenting slightly different dynamics than what we had historically. So those variables are all factored in how we price it. There is an opportunistic moment right now; we see ourselves as establishing deep partnerships and relationships with our customers. We want to work with customers who have the capability to execute and create a solution that works for both parties in that regard. As it relates to capacity expansion, India is going through a horrific time right now, seeing cases at close to 400,000 daily, which is alarming. But I don't want you to think that because of that, we're not confident that with the help India will continue to receive from international partners and allies like the United States and others, they will get through this challenge. We are still evaluating India very significantly as a growth market for us. Technology is highly competitive in India, and our CdTe cell technology is crucial, especially with CuRe and improved long-term degradation rates for hot, humid climates. Import duties currently imposed make it even more critical for us to consider how we address the market. The approved list of module manufacturers also imposes constraints. India remains a very important market for us. Regarding the US, we are well positioned; in Ohio, we had an option on additional land that could accommodate a large facility. Current savings and commitments from the administration are positive but are unfortunately moving slowly in some regards, which can be a bit frustrating. Overall, we think there are good undertones that will enable our work later this year, particularly as we look at market conditions where sales freight remains close to market. A penny or so in costs from sales freight can drive us to cross down even more competitively. Only thing I would clarify is that the next factory will be larger than any we have today, and they will represent our most advanced and competitively positioned products while enhancing automation across the factory process. A key focus for us is ensuring we deliver a highly competitive product at the lowest cost and highest performance. It's taking longer to validate all of that, but significant work is being done right now. We aim to make a final decision by our July earnings call, as I know there are continuous questions about it. We're pretty advanced in our evaluation; if we decide to move forward and hit all the criteria we highlighted, then we will announce it in July. If we choose not to, we will provide direction on how we will move forward instead. So, yes, a lot of important work is currently taking place.

So just one thing I'll add on the ASPs is that for the deals we're booking right now, these are deals that we've likely been in discussion with customers on calls for many months. I think the phenomenon you're seeing around crystalline silicon is that pricing has increased relatively recently. While I'm sure many of our competitors will have taken the opportunity to renegotiate pricing that was previously put out as fixed, we have chosen not to do that. So we've held pricing despite market trends.

Your next question is from Michael Weinstein of Credit Suisse Securities.

Do you have any potential plans to produce a residential product, considering continuous efficiency improvements? I was thinking perhaps of the tandem junction product you mentioned.

Yes, that product will be ideally suited for that type of application. It will be the highest efficiency, best energy profile, and we would target segments as a market that will pay a premium for efficiency. Residential would be the primary market for that. As we commercialize and scale up that technology, it will expand into market segments that today we have not historically sold into, but there will also be other high-efficiency markets where land constraints and other challenges exist and where our efficiency products would be advantageous. So yes, residential would be one of the key targets.

That's great. Just a follow-up on the couple of questions you were asked. You answered about optionality and pricing. How about tariffs? How do you deal with the possibility of additional tariffs, or tariffs possibly going away in your pricing outlook for 2022, 2023, and 2024?

I've been alluding to this for a while. We haven't been significantly impacted by tariffs on competition or tariffs on owned products. Tariffs imposed on crystalline silicon have fluctuated historically. Unfortunately, after the first 16 months of being implemented, the tariff went away. There was a bifacial exemption that caused issues, and yes, it’s been reinstated late last year. But most of what we've sold already through the sales cycle hasn't been influenced by these tariffs because the majority of our filings were already through at that point. We continue to develop and manage relationships, even with the imposition of tariffs and utilized them as an opportunity to engage customers rather than gouging them. We're still in the early innings of this industry; establishing relationships is crucial for our long-term success. Yes, tariffs can be influential, and we believe they are important. Still, there’s a need to build additional US manufacturing capabilities, and tariffs can enable that. However, we would never look to take advantage of that. If our product were to become subject to tariffs, we have provisions within our contracts to address those types of events and circumstances if they were to occur. I assume your question was more related to tariffs in relation to crystalline silicon competitors; they do influence pricing. But we would never want to use tariffs as an opportunity to gouge our customers.

Your next question is from J.B. Lowe with Citi.

I just wanted to circle back on the project economics comment that you made, Mark. We're seeing similar commentary from crystalline silicon suppliers. They'd like to push pricing higher given their cost issues with polysilicon; however, they are getting pushback from customers due to thin economics. Additionally, is there anything in your backlog that you think is more at risk than anything else due to potentially thin margins?

Look again, when we price those modules, they align with pro forma financials that work for end customers. If price pressures emerge across the supply chain affecting costs, it could potentially drive thinner margins for them. However, we have not seen it happen yet relative to customers incurring price pressures, and there have not been discussions regarding any alterations. We've been successful in finding customers who value the certainty of working with First Solar, and the trust between us and our customers is critical. As market dynamics change, pricing agreements also need to adapt to ensure commitments are met, creating certainty that goes both ways.

Your next question is from Moses Sutton of Barclays.

Of the 2.9 gigawatts booked since the last call, would you include the recently signed Sun Streams projects? How much originated from the pure third-party module pipeline versus something that was originally in systems?

With regard to the Sun Streams module volume, it was not part of the systems sales. I want to clarify that; most of that volume was not part of the systems pipeline. However, Alex may have more insight on the specific module volume related to the bookings.

About three-quarters of a gigawatt.

So the 2.9 gigawatts booked since the last call includes about 744 megawatts not tied to the systems business. The additional volume that we just booked today of 3.9 gigawatts is also not tied to the systems business. We are seeing increasing momentum!

Do you think your panel weight against freight cost per watt are the same as first currency refixes previously for an average mono-PERC competitor?

What we’re seeing now is that the larger form factors are causing increased freight costs. Those larger modules operate around three square meters, and shipping them vertically creates additional costs. So if we analyzed the previous two-meter square standard before, yes, they would have been slightly higher; they can't pack as many modules per container that leads to marginally more costs in their product line. But now, with bifacial glass and larger form factors, they are creating disadvantages with freight costs.

Your next question is from Brian Lee with Goldman Sachs.

I had two questions: one regarding systems and one regarding the cost reduction path. First on the systems, Mark, you said there is $130 to $160 million in gross profit in this year. After all the divestitures recently, how much remains to monetize in 2022? Is there any project in Japan for the near to medium term? You phrased it as a 3 to 5-year opportunity. Is there anything in the next one to two years? Then on the cost reduction side, you mentioned an 11% reduction in ASPs for bookings in 2022. Is there a scenario where you could start to accelerate that while maintaining stable gross margins on modules this trend adding into next year?

On the systems side, we guided for 132 to 160 million gross profits, with about 80 million recognized in Q1 and 60 million still to be realized in the second half of the year. Most of that comes from Japan, and you'll see that materialize later this year. Regarding the long-term opportunities, Japan will present consistent projects in the next three to five years, but there might be some smaller opportunities in the one to two-year range.

The other thing I would add regarding costs is that while some headwinds exist due to planned downtime from our upgrade processes, we don’t anticipate having to face significant challenges next year like we have had this year. Factors including improvements in efficiency, technology, and the volume of production combined, will help us maintain better margins and allow cost reductions in the future.

And ladies and gentlemen, this concludes today's conference call. You may now disconnect.