First Solar, Inc. Q3 FY2024 Earnings Call

Good afternoon, everyone, and welcome to First Solar's Third Quarter 2024 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 First Solar, Investor Relations. You may begin.

Good afternoon, and thank you for joining us. Today, the company issued a press release announcing its third quarter 2024 financial results. A copy of the press release and associated presentation are available on First Solar's website at investor.firstsolar.com. With us today are Mark Widmar, Chief Executive Officer; and Alex Bradley, Chief Financial Officer. Mark will provide business updates, Alex will discuss our bookings pipeline, quarterly financial results and provide updated guidance. Following their remarks, we will open the call to questions. Please note, this call will include forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We encourage you to review the Safe Harbor statements contained in today's press release and presentation for a more complete description. It is now my pleasure to introduce Mark Widmar, Chief Executive Officer.

Good afternoon. Thank you for joining us today. As we approach the end of 2024, we remain pleased with the progress made across our business navigating against the backdrop of industry volatility and political uncertainty with a continuous focus on balancing growth, profitability, and liquidity. As noted at our Analyst Day in late 2023 and our previous earnings call, our story is about the value of long-term strategic decision-making underpinned by differentiated technology and business model, which endeavors to drive value creation for our shareholders and partners. We expect that this disciplined long-term approach will allow us to work through the outcomes of the upcoming U.S. elections as well as continued volatility across the solar manufacturing industry. Beginning on Slide 3, I will share some key highlights from the third quarter. From a commercial perspective, we continued our highly selective approach to contracting with a net 0.4 gigawatts of new bookings since our last earnings call. This brings our year-to-date net bookings to 4 gigawatts and our total contracted backlog to 73.3 gigawatts with orders stretching through 2030. From a manufacturing perspective, while we're pleased with record production of 3.8 gigawatts in the quarter, our financial results were impacted by a product warranty charge of $50 million due to manufacturing issues, which we have identified and taken actions to address related to the initial production of our Series 7 product. This was primarily attributed to variability in the effectiveness of the glass cleaning process at the beginning of our production line and an error in our process of predicting the engineering performance margin. We inaugurated our new $1.1 billion Alabama facility, which, when fully scaled, adds 3.5 gigawatts of vertically integrated nameplate solar manufacturing capacity. The start of commercial operation at the Alabama facility, along with our under-construction Louisiana facility, which remains on track to begin operations in the second half of 2025, keeps us on course to achieve our projection of over 14 gigawatts of annual U.S. nameplate capacity and over 25 gigawatts of global nameplate capacity by 2026. This growth is expected to support an estimated 30,000 direct, indirect, and induced jobs in the U.S. alone, representing $2.8 billion in annual labor income, demonstrating the significant contribution to our nation's economic growth that high-value solar manufacturing can provide. Turning to technology. As planned, we are launching CuRe production at our lead line in Ohio in Q4 of this year. We intend to launch this production in a phased approach, initially producing and selling approximately 0.4 gigawatts of CuRe product through Q1 of 2025. Upon successful field performance validation following the deployment of this volume of sold CuRe product, we intend to permanently convert the Ohio lead line to CuRe in Q4 2025 as well as replicate CuRe across the fleet, beginning as scheduled with our Vietnam and third Ohio facilities in time to start capturing upside from our contractual revenue adjusters. In addition, at our new perovskite development line in Perrysburg, this quarter will be the first time we will be able to run technology samples through an automated process that simulates in-line manufacturing conditions as we accelerate our efforts to develop the next breakthrough in thin film photovoltaic technology. With regard to intellectual property, we have recently sent notification letters to Tier 1 solar manufacturers that we believe are infringing on First Solar's TOPCon patent portfolio, which I'll discuss in more detail later in the call. While Alex will provide a comprehensive overview of the third quarter 2024 financial results, I would like to highlight our third quarter earnings per share of $2.91 which includes the $50 million product warranty charge referenced earlier. Finally, our leadership in thin film technology and track record of investing in innovation led to First Solar being recognized by MIT Technology Review's annual list of climate tech companies to watch, the only solar technology and manufacturing company to be included in this year's list. Furthermore, we were also proud to make our debut as TIME’s magazine's World's Best Companies in 2024 list. Moving to Slide 4, we recently published our annual sustainability report and would like to take this opportunity to share a few highlights. In our 25th year, we are doubling down on our commitment to the principles of responsible solar, which drives our company's environmental, social, and governance strategy, leadership, and differentiation. From the health and environmental benefits of achieving greater avoided emissions through our ultra-low carbon solar technology to our longstanding leadership in PV recycling and commitment to human rights, transparency, and credible third-party validation. We continue to establish new standards while challenging the industry as a whole to do better. Over the past year, we continued to drive environmental, social, and governance progress. As part of our culture of continuous improvement, we successfully reduced our water and waste intensity per watt produced and increased the percentage of women in our workforce in 2023 relative to the preceding year. We continue to build on our longstanding leadership position in PV recycling in 2023, achieving a global average material recovery rate of 95% across our recycling facilities. Today, we operate high-value recycling facilities in the U.S., Germany, Malaysia, Vietnam, and India. A shift to producing a verifiable ultra-low carbon solar is needed to ensure that the global PV manufacturing industry does not undermine its role in its fight against climate change. Although the industry currently accounts for a small portion of global emissions today, that's changing. A report by the Clean Energy Buyers Institute warns that a business-as-usual approach dominated by energy-intensive, crisp and silicon would lead PV manufacturing to exceed aluminum manufacturing, currently the fourth most emission-intensive industrial commodity by 2040. We are proud to be leading the charge by having the world's first solar modules to achieve EP Climate Plus designation and meet the industry's first ultra-low carbon solar thresholds for global use. Turning to Slide 5. I would like to address the numerous intellectual property challenges concerning crystalline silicon cell technology that are currently ongoing within the industry. Historically, PV industry intellectual property claims, particularly related to crystalline silicon technologies, and especially among Chinese-headquartered producers, have been limited and seldom asserted. This has largely been due to the understanding that cell-related technology advancements were effectively open source with patents and know-how freely shared within the Chinese manufacturing ecosystem. Today's intellectual property landscape within the solar manufacturing sector has clearly changed. As shown on Slide 5, a number of leading manufacturers are asserting patent-related claims against one another. Notably, a number of these actions are focused on alleged infringement of TOPCon patents. As just one example, earlier this month, Trina filed a section 337 complaint at the U.S. International Trade Commission, or ITC, against Runergy and Adani. According to the complaint, Trina is seeking to exclude TOPCon solar cells, modules, and components from importation into the United States due to alleged patent infringement, which the ITC is now investigating. As disclosed earlier in the third quarter, First Solar also possesses a TOPCon patent portfolio through our acquisition of TetraSun in 2013, which we have begun to leverage as part of our ongoing efforts to develop the next generation of PV technologies. Our TOPCon portfolio includes patents and patent applications in various countries with patent terms extending to 2030. Note regarding the India market: although First Solar does not possess a TOPCon patent in India, several jurisdictions where we do have patents are sourcing India-bound cell manufacturing and exports. We believe we will be able to assert our patent rights in these jurisdictions against manufacturers and exporters of infringing India-bound products. While a number of other market participants are claiming they too own TOPCon patents, it is important to note that, as with any mature technology, it is not unusual that multiple key patents may be held by multiple and related parties. Without ownership or license covering every relevant patent used in the manufacturing process, a manufacturer does not have the freedom to produce and sell an otherwise infringing product. Since our July announcement regarding First Solar's TOPCon patent portfolio, we have advanced our investigation into several crystalline silicon solar manufacturers for potential infringement of our patents. The result of these efforts has enhanced our conviction that we possess fundamentally valid and enforceable patents in relation to TOPCon cell technology. To that end, we have recently begun sending letters to various solar manufacturers providing notice to each recipient that they are using First Solar's TOPCon patents without a license and reserving First Solar's rights in their entirety. We are currently in negotiation with multiple interested parties regarding rights to our TOPCon patent portfolio. Finally, during the third quarter, we achieved a victory upholding the validity of our Chinese TOPCon patents in the Patent Reexamination and Invalidation Department of the China National Intellectual Property Administration, which is the patent office in China. The PRID upheld the validity of all 17 claims of our Chinese TOPCon patent against a number of asserted prior art references. Together with our aforementioned outreach to manufacturers aimed at discussing potential structures to authorize the actual or planned use of our TOPCon patents, our recent victory in China provides third-party validation of the strength of our TOPCon patent portfolio. First Solar has long held a commitment to fundamental concepts of respect for the integrity of property rights. As shown on Slide 5 and reflected in numerous public announcements and public reporting over the past year, First Solar is not alone in seeking to protect its intellectual property rights, with a number of other leading manufacturers taking actions to protect their rights as well. To the extent these manufacturers, the majority of which are Chinese-based, continue to report significant financial loss in their race to the bottom, it is reasonable to expect that they will continue to aggressively assert these claims. We believe the IP-based uncertainty surrounding crystalline silicon manufacturers' freedom to manufacture and sell TOPCon solar products and the potential complications for a PV project utilizing potentially infringing solar cells should be taken into consideration by developers, project owners, and PPA off-takers, as well as debt and tax equity financing parties. In addition, we believe the current intellectual property landscape, particularly as it relates to TOPCon cell technology, underscores one of First Solar's key competitive differentiators of delivering a unique proprietary homegrown cadmium telluride semiconductor technology, in contrast to the highly commoditized crystalline silicon modules. I'll now turn the call over to Alex to discuss our bookings, pipeline, and financials.

Thanks, Mark. Beginning on Slide 6. As of December 31, 2023, a contracted backlog totaled 78.3 gigawatts with an aggregate value of $23.3 billion. Through September 30, 2024, we had recognized 9 gigawatts of sold volume and contracted an additional 3.5 gigawatts. This includes a reduction to our bookings of 0.4 gigawatts due to the termination of a contract with Plug Power, a former corporate customer who experienced delays in their project as first noted on our earnings call in February of this year. After significant attempts to negotiate, a mutually beneficial solution failed, and we were unable to renegotiate the contract to our satisfaction. In Q3, we elected to terminate the contract and pursue our contractually agreed termination remedies. This brings our total backlog to 72.8 gigawatts at quarter end with an aggregate value of $21.7 billion, implying an ASP of approximately $0.298 per watt, excluding adjusters where applicable. Since the end of the third quarter, we've entered into an additional 0.5 gigawatts of contracts increasing our total backlog to 73.3 gigawatts. What about ASPs for our 0.8 gigawatts of gross bookings since the prior earnings call, this includes approximately 180 megawatts of domestic India shipments and an ASP of approximately $0.19 per watt. Given the India market pricing environment, I'll further discuss our strategy as it relates to sales of our India-produced product shortly. It also includes the booking for 50 megawatts of aged low-bin inventory that would not be usable by our traditional utility-scale customer base and that would otherwise be scrapped to be sold for a non-traditional contracting arrangement. This is a true non-contingent sale with a module distributor at an initial ASP of $0.05 per watt. We expect to receive upside revenue sharing based on the final sale price, which we will reflect as incremental revenue at the time of sale to the end user. The remaining approximately 560 megawatts of bookings to our traditional U.S. utility-scale customer base is at an ASP of approximately $0.304 per watt, excluding adjusters, or up to $0.32 per watt, assuming the realization of adjusters where applicable. As it relates to the U.S. utility-scale market, the updated domestic content bonus Safe Harbor guidance issued by the Department of Treasury and IRS in May 2024 sets out a more practical points-based calculation rather than a cost-based calculation for a renewable energy project to qualify for the bonus, placing a high value on vertically integrated manufacturing that utilizes domestically procured components, a profile exemplified by First Solar's growing domestic manufacturing operations. Given the high domestic content embedded in our U.S. produced Series 6 and Series 7 modules, which critically feature a domestically manufactured cell and incorporate domestic components for all the points eligible components specified in the elective safe harbor in the May 2024 updated guidance, our production fleet greatly enables our customers' ability to satisfy the domestic content bonus criteria. Under the new elective safe harbor, there are opportunities for First Solar to optimize its supply chain and allocation strategy, including with deliveries to customers and modules produced across our global fleet. This approach allows us to optimize our production base while ensuring that our customers receive the points necessary for them to qualify for and finance the domestic content bonus. To that end, during the quarter, we began effecting this optimization strategy to amend contracts while maintaining the ASP under the original module sale agreement. A substantial portion of our backlog includes opportunities to increase the base ASP through the application of adjusters. If we realize achievements within our current technology roadmap, as of the expected timing for delivery of the product. At the end of the third quarter, we had approximately 37.3 gigawatts of contracted volume with these adjusters, which if fully realized could result in additional revenue of up to approximately $0.7 billion or approximately $0.02 per watt, a majority of which will be recognized between 2026 and 2028. This amount does not include potential adjustments, which are generally applicable to the total contracted backlog, both the ultimate module delivered to the customer, which may adjust the ASP in the sales contract upwards or downwards, and for increases in sales rate or applicable aluminum or steel commodity price changes. Reflected on Slide 7, our total pipeline of potential bookings remains strong with bookings opportunities totaling 81.4 gigawatts, an increase of approximately 0.8 gigawatts since the previous quarter. Our mid-to-late stage bookings opportunity decreased by approximately 5.1 gigawatts to 23.5 gigawatts, which includes 20.9 gigawatts in North America and 2.3 gigawatts in India. Within our mid-to-late stage pipeline, 3.9 gigawatts of opportunities are contracted and subject to conditions precedent, including in the U.S. a 620-megawatt module supply grid with a customer that we supply in power to our hyperscaler, as referenced on our last earnings call and 0.8 gigawatts in India. As a reminder, signed contracts in India would not be recognized as bookings until we receive full security against the offtake. Notably, we have reduced our opportunities that are contracted but subject to conditions precedent for India by 0.4 gigawatts as a result of terminating a defaulted module supply agreement with an India affiliate of a European oil major, who is reportedly in the process of selling this business. Improving our revenues for the third quarter is a contractual termination payment associated with the contract default under this agreement. As stated on previous earnings calls, given our diminished available supply through 2027, the long-dated timeframe into which we're now selling, the need to align customer project visibility with our balanced approach to ASPs, payment security, and other key contractual terms. Given uncertainty related to the policy environment due to the upcoming U.S. election, we'll continue to leverage our position of strength in our contracted backlog and be highly selective in our approach to new bookings this year. We intend to continue forward contracts with customers who prioritize long-term relationships and appropriately value our points of differentiation. On Slide 8, I'll cover our financial results for the third quarter. Net sales in the third quarter were $0.9 billion, a decrease of $0.1 billion compared to the second quarter. The decrease in net sales was driven by a 12% decrease in the volume of megawatts sold and the aforementioned increase in our Series 7 product warranty liability, partly offset by expected payments associated with contract terminations in the U.S. and India. Gross margin was 50% in the third quarter compared to 49% in the second quarter. The increase was primarily attributable to higher contract termination payments and a higher mix of modules sold from our U.S. factories, which led to $264 million of Section 45X tax credits during the period, partially offset by the aforementioned increase in our Series 7 product warranty liability, higher underutilization charges, and additional inventory reserves for lower bin modules manufactured by international factories. During the third quarter, we experienced certain planned downtime for CuRe technology upgrades, as well as unplanned downtime for the CrowdStrike event and various other operational challenges, which I will describe shortly, and equipment repairs. We also incurred certain underutilization charges at our new factory in Alabama as we began ramping production during the period. SG&A, R&D, and production startup expenses totaled $123 million in the third quarter, a decrease of approximately $3 million compared to the second quarter. This decrease was primarily driven by lower R&D testing expenses as we sought to maximize production throughput, while transitioning certain testing activities to our recently dedicated Jim Nolan Center for Solar Innovation, along with a reduction in incentive compensation expenses. Our third quarter operating income was $322 million, which included depreciation, amortization, and accretion of $111 million, ramp cost of $25 million, production startup expense of $27 million, and share-based compensation expense of $7 million. Third quarter other income was $5 million, which was consistent with the second quarter. Tax expense for third quarter was $14 million compared to $28 million in the second quarter. This decrease was driven by higher forecasted income in lower tax jurisdictions and the second quarter change in our position related to reinvesting the accumulated earnings of a foreign subsidiary, which resulted in an additional tax expense in the prior period. The combination of the aforementioned items led to third quarter earnings per diluted share of $2.91. Next, turning to Slide 9 to discuss select balance sheet items and summary cash flow information. Our cash, cash equivalents, restricted cash, restricted cash equivalents, and marketable securities ended the quarter at $1.3 billion, compared to $1.8 billion at the end of the prior quarter. This decrease was primarily driven by capital expenditures associated with our new U.S. factories in Alabama and Louisiana, along with an increase in working capital. Total debt at the end of the third quarter was $582 million, an increase of $23 million from the second quarter as a result of higher working capital loans in India, which helped support the continued ramp of our new plant in the region. Our net cash position decreased by approximately $0.5 billion to $0.7 billion as a result of the aforementioned factors. Cash flows used in operations were $54 million in the third quarter, and capital expenditures were $434 million during the period. Continuing on to Slide 10, I'd like to provide some context for our financial guidance update. Our full-year P&L guidance, first issued in February, remained unchanged through our Q1 and Q2 earnings calls in May and July, respectively. However, in July, we noted that following the termination for convenience of 0.4 gigawatts of contracted capacity by a European power and utilities customer, who is selling a portfolio of U.S. development assets, we expected volumes sold revenue and net cash guidance to be towards the bottom end of our guidance range. As it relates to our updated guidance, there are several drivers of the forecast changes. Firstly, since our last earnings call where we referenced the global CrowdStrike IT outage, which temporarily idled our fleet for approximately 2 days, we have experienced a number of additional operational challenges. These include hurricanes Francine, Helene, and Milton which made landfall across the Southeastern United States, impacting early module deliveries within the region, but also our Louisiana factory construction, as well as causing logistical impact at our distribution centers in South Carolina and Texas. These distribution centers, along with other transport infrastructure, including the ports themselves, were also affected by the International Longshoreman Association strike. In addition, an external security alert at our Ohio location, while ultimately unsubstantiated, resulted in the full evacuation of the facilities with adverse consequences to scheduled production output. Each of these events, whilst not individually material, have in totality had an adverse impact on operational and financial performance. Secondly, as it relates to India, as referenced on both our Q1 and Q2 earnings calls, we continue to remain concerned by Chinese dumping into the Indian market, which has led to an artificially low and challenged ASP environment for domestic sales. In response to this behavior, which threatens India's aspirations to end its reliance on an adversary by developing a domestic manufacturing base that serves a domestic market, the Indian Ministry of Commerce and Industry has recently initiated an antidumping investigation into solar cell imports from China. However, despite this investigation, domestic India ASPs remain depressed as a function of this dumping behavior, and as reflected by the approximately $0.19 per watt ASP for our recent India bookings discussed earlier. With such artificially depressed ASPs in the India market, we see the updated Safe Harbor guidance for the IRA domestic content bonus released in May 2024 providing us with an opportunity to shift India production from fixed tilt to tracker product and ship a portion of our future Indian manufactured product into the US market at higher ASPs. Net of incremental production and freight costs, we expect shipping this product to the US to be gross margin accretive relative to domestic India sales. However, given transit and delivery times to the US market, we expect this to reduce the volume of product produced by our India factory and sold in 2024 by approximately 0.9 gigawatts. Thirdly, and as again previously noted on our earnings call this year, we have seen some requests from customers to shift delivery volume timing out as a function of project development delays. We continue to work with our customers to optimize the delivery schedules for their contracted volumes to the extent we are able to accommodate them. This has been a driver of the backending of revenue and gross margin to Q4 of this year. In some cases, we are enforcing our contractual rights to ship modules to warehouses in the event that customers are not ready to receive the product as scheduled under the contract. In other cases, we are able to accommodate schedule shifts either through reallocation to another customer or through interim storage of the module. Despite the termination of the Plug Power contract, the 0.4 gigawatts of modules originally assumed to be sold this year, and a recent request for an increase for delivery schedule flexibility, we have largely been able to mitigate the impact to our sold volume guidance, which is modestly reduced by approximately 0.3 gigawatts. Fourthly, we continue to enforce our contractual rights in the event of a contractual breach. The aforementioned Plug Power contract termination resulted in a termination payment entitlement recognized as revenue in the third quarter. Additionally, during the quarter, we enforced our termination rights under two contracts in India, which also resulted in termination payment entitlements recognized as revenue in Q3. While cash and other liquid security deposits cover a portion of these payments, in order to collect the balance owed, we expect to litigate. To that end, we have filed a complaint against Plug Power and commenced arbitration proceedings against one Indian customer, and we anticipate initiating arbitration proceedings against the second Indian customer, in all cases seeking to enforce our full termination payment rights on the respective contracts. The combined effect of these impacts would serve to reduce our full-year 2024 volume sold revenue and net cash guidance numbers below those provided on our Q2 earnings call in July, with the contractual termination payments largely offsetting the reduced sold volume, resulting in gross margin, operating income, and earnings per diluted share guidance being within the previous ranges provided. So with this context in mind and together with the impact of the aforementioned $50 million product warranty charge related to the initial production of our new Series 7 products, our updated guidance ranges are as follows: We expect volumes sold of 14.2 to 14.6 gigawatts, resulting in net sales guidance of between $4.1 billion and $4.25 billion. Gross margin is expected to be between $1.95 billion and $2 billion, which includes $1.02 billion to $1.05 billion of Section 45x tax credits and $60 million to $75 million of ramp costs. SG&A expenses are expected to be $445 million to $475 million, which includes $185 million to $195 million of SG&A expense, $190 million to $200 million of R&D expense, and $70 million to $80 million of production startup expenses. Operating income is expected to be between $1.48 billion and $1.54 billion, inclusive of $130 million to $155 million of combined ramp costs and plant startup expenses and $1.02 billion to $1.05 billion of Section 45x tax credits. We expect interest income, interest expense, other income, and tax expense to net to a total expense of approximately $80 million. This results in a full year 2024 earnings per diluted share guidance range of $13 to $13.50. Capital expenses are forecasted to be between $1.55 billion and $1.65 billion, a reduction of $250 million to $350 million from the prior forecast, largely as a result of the timing of payments related to capacity expansion and R&D initiatives. Our year-end 2024 net cash balance is anticipated to be between $0.5 billion and $0.7 billion as a result of the aforementioned changes to volumes sold in revenue and the timing of receivables, partially offset by reductions in capital expenditures. Now I'll hand the call back to Mark for his concluding message.

All right. Thanks, Alex. As you all know, a week from today, U.S. voters go to polls, and our industry is focused on the results and potential implications of those results. While we cannot predict the outcome of the upcoming elections, we are optimistic about the impact of our work to constructively engage with and inform policymakers across the political spectrum about the economic and strategic benefits of high-value domestic manufacturing. We are further optimistic that regardless of the results, we are continuing to build a company that endeavors to exit this decade in a stronger position than when it entered it. As we've said before, we are not immune from the long-standing challenges resulting from the continued irrational pricing and reckless capacity expansion behavior of the Chinese-nominated crystalline silicon industry, and we must remain nimble in the face of near-term challenges presented by matters such as project development delays, particularly here in the United States market. That said, by continuing to execute a strategy of disciplined growth underpinned by demand and resiliency in our order backlog, and when necessary, and only after collaborative spirited efforts of accessible accommodations cannot be reached, we will vigorously enforce our commitments. By continued investment in capital and research and development to advance the next generation of thin film photovoltaics, which we believe presents the future of this industry, by advancing technology leadership through the development of strategic intellectual property portfolios and leverage those rights, and by our long-standing advocacy for the development and enforcement of laws that level the playing field for domestic high-value manufacturing that today are arguably within the central policy position on both sides of the aisle. By continuing to deliver upon our commitments and our history of providing certainty to our customers, which includes making efforts to do right by our customers on those occasions when we fall short of delivering on those commitments. And by adhering to our decision-making framework of balancing growth, profitability, and liquidity, we believe First Solar is positioned to not only maintain but to build upon our more than 25 years of industry leadership. To conclude, Alex will now summarize the key messages from today's call on Slide 11.

We continue to be disciplined in our approach to contracting with 4 gigawatts of net bookings year-to-date, leading to a resilient contracted backlog of 73.3 gigawatts. Our continued focus on manufacturing technology excellence resulted in a record quarterly production of 3.8 gigawatts. Our Alabama factory commenced operations, and our Louisiana factory remains on schedule. From a technology perspective, we expect to launch our CuRe lead line and commission our perovskite development line in Q4 of this year. We also sent letters to certain solar manufacturers providing notice that they're using First Solar's TOPCon patents without a license and reserve First Solar's rights in their entirety. Financially, we earned $2.91 per diluted share. We ended the quarter with a gross cash balance of $1.3 billion or $0.7 billion net of debt. We're revising our full-year 2024 guidance with full-year earnings to diluted share guidance of $13 to $13.50. And with that, we can do that for better remarks and open the call for questions.

We'll go first to Philip Shen from ROTH Capital Partners.

Thank you for taking my questions. My first question is about the chips ITC. I recently saw news indicating that wafer and ingot facilities could benefit from this in the U.S. Our research suggests that you might have an opportunity to take advantage of that. If that's true, do you believe the recent facilities you’ve brought online in the past few years could qualify? Additionally, can you share your thoughts on whether you will be able to access that? Moving on to bookings price, it seems like it was $0.304 per watt for the additional 400 megawatts, which is slightly down from the previous quarter. Can you explain why that is and what your expectations are? Lastly, regarding India, we understand your strategy concerning unsold modules. Looking ahead, do you anticipate lowering the utilization of your India facility, or what is the current utilization, and do you plan to maintain or increase it?

All right, Phil. I will address the first and last question while allowing Alex to discuss the bookings ASP. Regarding the recent announcement about the chip ITC and how it applies to wake facilities, we are actively engaged and assessing the potential capabilities of our facilities. Generally, the intent behind many aspects of the IRAs is to remain technology neutral and ensure that various technologies can access similar benefits. For example, the manufacturing tax rate, the 45X, provides about $0.17 in value for each step from wafer to cell to module for both crystalline silicon and other technologies like thin films, such as today's cad tel thin film or the future of perovskite thin film. The goal was to establish equivalency among these technologies rather than favor one over another. We are pleased with this decision, as it helps foster the vertically integrated supply chain we believe is essential for long-term success. The IRAs were designed to facilitate the transition to a domestic industry and enhance vertical integration in the supply chain. We will remain proactive in determining if we can qualify for these benefits, especially for our facilities in Alabama and Louisiana. Now, regarding India, we are currently in a transitional phase for that domestic market. China is aggressively competing globally without regard for specific markets, maintaining significant excess capacity and engaging in significant price reductions that challenge domestic producers. In India, the pricing for cells and wafers has reached levels that make domestic manufacturing less viable when compared to imports, even when tariffs are in place. However, this situation is evolving, as there is an ongoing antidumping case addressing these market dynamics, and we are hopeful for a positive outcome. There is also a plan to establish a list of approved module manufacturers, which will expand to include cell manufacturers, potentially creating non-trade barriers for imports from China. The aim is to have this process operational by the end of Q1 2026. The adjustments taking place in the market are encouraging, and we will continue to prioritize the domestic market while choosing selective opportunities where we can secure prices commensurate with the technology and value we offer. Meanwhile, we have the ability to export our technology, particularly our mounting systems. The products in India are primarily fixed tilt, but we plan to ship a tracker product to the U.S. market, which has a slightly different mounting structure yet is fundamentally the same technology. We are optimistic that with favorable pricing in the U.S. market and selective opportunities in India, we can maintain full utilization in India. Currently, as we transition to the tracker product, the facility is operating at full capacity. In Q3, the fixed cell product was below full absorption, leading to some underutilization charges for that facility. However, at present, it is functioning at full utilization to produce tracker products for the U.S. market.

Yes. And Phil on the ASPs, I wouldn't read into anything on where that 30.4% ASP is just given how smaller volume we're booking. It's a function of that disciplined selective approach that we talked about. But just to clarify on the volumes, I think you said 0.4. It's 0.4 gigawatts of net bookings. We did have the plug debooking in there of 0.4. So it's 0.8 of gross bookings. Within that, there's about 180 megawatts of India volume and then about 50 megawatts of volume that is going into the U.S., but it's a lot of old low-bin inventory that otherwise would likely have been scrapped. We're selling that under a construct where it's recognized today as a booking at a very low ASP of $0.05. But what ultimately happened is the person we're selling that to will then go out and sell that into the market and there's a revenue sharing. So ultimately, we'll get a much higher price for that, but today it gets recognized at that lower number. So what you're seeing is actually about 0.6 gigawatts or so, a little under 600 megawatts of new U.S. bookings and that's what that 30.4 relates to. And again that number is also pre-adjusted. So with adjusted on top of that, a lot of that volume being booked into a timeframe where we will have technology adjustments that go up to $0.32.

Hey, guys. Good afternoon. Thanks for taking the questions. Maybe a follow-up to Phil's question for you, Mark. I know it might be tough to answer specifically, but on the Q1 call, you guys had said. I think it was 2.6 gigawatts of production in India, shipping 1 gigawatt plus to the U.S. and then presumably the rest shipping domestically in India. Clearly, that calculus is changing here. So can you give us a sense of what that mix would look like going forward? And then how many quarters it does take to reengineer and then reallocate that India volume back to the US where it sounds like you're going to take advantage of better pricing? And then just on the rest of your guidance, it seems if you do the math, it's 5.4 gigawatts or so in that neighborhood of sold volume in Q4. It's significantly higher than any run rate you've seen in the past would be a record. How de-risked do you see that volume sold level, especially in the context of you mentioning some push outs and things that maybe aren't staying on customer timelines as you might have initially anticipated?

Yes, Brian, regarding India and our ability to adapt from fixed to tracked products, the transition only requires a couple of days of downtime. The primary change involves the mounting structure; instead of a steel rail for a fixed setup, we now have one that can accommodate a tracker. Coordination with our supply chain is necessary to ensure our rail supplier adjusts specifications as needed, which requires some advance notice. However, we are quite agile at this point. We have improved our back-end assembly processes and our pack-out capabilities to allow flexibility in programming robots and automated guided vehicles to switch quickly based on the product mix we need to manufacture. Regarding opportunities, particularly with the new point system, we have 14 gigawatts of Series 7 capacity, allowing us to easily blend domestic and international Series 7 products in the same projects since they are identical. As we advance through our roadmap, we must carefully manage the transition of domestic and international factories. If we produce a BiFi product with Series 7 domestically, we also want India to produce a BiFi product for project blending, as it's not ideal to mix BiFi products domestically with mono-facial products internationally in the same projects. We've become quite proficient at this flexibility and intend to operate the factory at full capacity. Looking long-term, considering the pricing trends we are witnessing, if they stabilize positively, I anticipate that in the next couple of years, less than 1 gigawatt will come from India with the majority going to the U.S. market. We will align this with the underlying demand in each market. Regarding the fourth quarter, there are ongoing risks with scheduled movements and shifts. We have worked closely with our customers to understand their timelines for module receipt. If there are delays, we are moving towards storing them in warehouses, potentially charging customers for warehousing costs, while ensuring we adhere to our contract rights. As indicated, we will remain accommodating and flexible where possible, but at this stage, given the inventory buildup over the first three quarters of this year, it's crucial to relocate that inventory to other locations or into projects rather than storing it in customer warehouses.

And Brian, just a couple of other comments on that. As we begin ramping up CuRe at the back end of this year, we are assuming that volume gets sold. It's not a significant amount of volume, but with any ramp, you've got risk around early production, given its U.S. volume and IRA dollars attached to it, even a small amount of volume there can have some material impact to dollars. So that's one risk. The other I would say is, as we noted on the call, we've seen operational challenges, a lot of those from outside events, including weather events. As you start to ship more, especially as we look at the back end of the year, any event can have a greater impact as we're trying to get more product out the door.

If I can follow up on a couple of things. First, small detail, coming out of the queue, just with respect to the S7 manufacturing warranty piece you kind of alluded to some ongoing risk. Have you fully remediated the backdrop here around the $50 million warranty liability? I just wanted to get a little bit more color there and more specifically, comfort level on resolving that prospectively. And then if I could the second question, and then related to it. Going back to what you were talking about a second ago with respect to India, just want to understand the safe harbor dialogue and what you anticipate doing here. Is there a potential to effectively swap in panels maybe from a different origin than what had been previously contemplated? Is this a net increase in overall blending of foreign panels in or is it just about providing greater latitude on where those panels are coming from? I just want to make sure I understood exactly what you were saying there.

Yes. First, regarding the warranty, I want to provide additional details because there may be other inquiries related to this topic. I may have mentioned Series 6 earlier, and I'm pleased that Julien brought up Series 7, which is what Alex indicated and is also reflected in our filings. This manufacturing issue is specific to the initial production of Series 7, where variability in the production process may affect certain modules while not impacting others. In some instances, performance may fall short, whereas in others, it might meet expectations. This issue typically needs to be identified after the modules have been deployed and are in use so we can observe performance. If we find any shortfall in the field, we'll bring the modules in for lab testing to determine if there’s a warrantable claim. There are two main issues, both connected to the startup of new technology. The first relates to manufacturing and I want to clarify that it doesn't reflect any defect or fundamental performance problem with the device itself. During our initial startup, we start with the first piece of glass in the manufacturing process, grinding the edges and rounding the corners. Sometimes residual chemicals or particles can end up on the glass. The subsequent step is to wash it, but Series 7 has a longer wait time between the grinding process and washing. This extra time allowed some materials to calcify onto the glass, hindering proper cleaning. We’ve since updated the washing process to ensure we thoroughly clean the modules after grinding, which resolves this issue. The second issue relates to the engineering performance margin. Whenever we launch a product, extensive reliability and quality tests are performed, largely in a lab setting through accelerated testing to predict future field performance. We share this data with independent engineers during our qualification process. We discovered an error in our calculation of the engineering performance margin, which was understated. This was identified during testing of modules returned from the field, prompting us to correct that calculation. Both of these issues have been addressed and corrected, and current production will not experience the adverse effects seen with the initial launch of Series 7. To add context, it has only been a little over a year since we began shipping Series 7. While we deploy modules into test sites, only a limited number are deployed for testing, and the full variability in our manufacturing process becomes evident once the devices are in the field. We've gathered test data and concluded that there will be incremental charges to our warranty due to performance issues that we overlooked in our quality operating system. However, corrective actions have been taken to enhance the robustness of our overall quality of service system. I want to reiterate that these issues are not fundamental to the device; they stemmed from a calculation error and an incomplete understanding of the manufacturing process relating to the time between grinding and washing, which did not appear in our accelerated testing or performance evaluations prior to shipping. This issue only became apparent once the modules were in the field. We're pleased to have identified this problem, and we will stand by our technology and address all necessary matters with our customers. The problem has been corrected going forward.

I have two quick questions. It seems there may be a larger strategic shift towards sending possibly not the full 25 gig to the U.S. in the upcoming years. Based on your conversations with customers, do you believe the U.S. market will have sufficient demand to handle these volumes? Additionally, I have a follow-up regarding the CuRe plan. How should we consider the CuRe gigawatts that might be recognized next year, the increase in average selling price, and the additional margins for CuRe?

Regarding the U.S. market and the fundamental demand for our output, you're correct. The current path we're on, combined with our contracted backlog, indicates a strong alignment, particularly for 2025 and 2026, concerning the available supply and the demand that will utilize the products we aim to introduce in the Indian market. Presently, we maintain a solid position for 2027 from a demand perspective tied to our U.S. bookings. It’s essential to consider the potential for increased U.S. demand in 2027, with hopes of a more vibrant market in India and a more balanced supply-demand scenario in Indian production facilities to support the U.S. market. If we manage to achieve a 50/50 split, we foresee strong demand in the U.S. market to facilitate this. Importantly, we remain committed to enhancing domestic content value for our clients, which they are ready to invest in, and we anticipate that the domestic content requirements will evolve. Many of you are likely aware that updates on domestic content calculations will now include wafers, necessitating that modules contain U.S. wafers to qualify, which will enhance their overall value, particularly given our full vertical integration that allows us to optimize the mix of domestic and international products. Therefore, we are confident for 2025 and 2026; however, we will need to monitor developments in 2027. Our initial assessment suggests that the Indian market will become more resilient by 2027, drawing some demand away from the U.S. market, but we believe the portion aimed at the U.S. market will be able to satisfy the entirety of that demand for 2027.

As it relates to CuRe, so we said on the call that there are about $0.7 billion of adjusters, most of which are relevant to 2026, '27, and '28. We also said that CuRe will launch lead line at the end of this year, will produce just under 0.5 gigawatts of product at the end of this year into Q1. Then we will go and do field performance testing around that product, and then CuRe will launch again towards the end of 2025 in Phase 2. In that middle period, we're doing field testing, but also that's a period where we wouldn't see significant upside associated with the CuRe product. Hence going back to producing current product, and the aim there is to have CuRe produced across not just the Ohio plant at the back end of '25 but moving across the fleet in time to start capturing the upside from those contractual revenue adjustments going into 2026.

Great. Thanks so much for taking the question. I guess I want to come back to the guidance for volumes sold for the year. It sounds like a majority of the reduction was a result of some of the operational challenges you've had plus some of the India headwinds that you're facing, but didn't hear too much in terms of U.S.-based project delays influencing that guidance. Can you maybe just talk a little bit more about what you're seeing from customers in terms of their request for delays? Is the duration getting extended? I think you guys have historically talked about getting requests in the several week timeframe for delays. Are you seeing things get pushed 6 months to a year just given the uncertainty of the election? I'm just hoping to get more context in terms of what you're seeing from customers on the project delay side.

Yes. I'll start. Maybe Mark will add his color. The low end of the guide before was 15.6. We said on the last call that we expect it to be towards the low end of the guide given the termination we had in Q2. We brought the midpoint of the guide down now to 14.4, so it's a 1.2 reduction. Just under a gig of that is related to India. As we said on the call, a large piece of that is due to where pricing is in India today. At the same time, we see the opportunity to bring that volume into the U.S. at much better ASP. So you have a challenging market in India right now, but given the domestic content guidance, we can bring that in and actually see a significant margin uplift associated with that. The challenge is that we have to produce tracker products. We have some products in inventory in India that are fixed tilt, which will be sold into the India market. Mark made the comment that it only takes a few days to turn the factory over into producing the tracker product. But now producing that, putting it on a boat, getting it into the U.S., getting it sold, you're not going to see that sold volume hit this year, which is why the guide came down. As it relates to other product, non-India product, we largely managed to mitigate the risks we've seen throughout the year. We had the Plug Power termination that was about a 0.4 gigawatt impact, and we're only down 0.3 on non-India volume. We've managed to mitigate even a piece of that and almost everything else. We have seen a little bit more in terms of requests to move product, and some of those requests have been longer than before. Generally, we are trying to work with our customers where we can, but also sticking to contracts where we need to and enforcing the ability to ship. So I would say there's a little bit more in the U.S. I think there's a little bit around interconnection and project delays. I don't think we've really seen financing being an issue in U.S. projects. It's mostly around other development items. As I said, we've largely been able to mitigate that either through shipping to warehouses or through reallocation.

And ladies and gentlemen, that does conclude our final question today. That also does conclude today's conference. We would like to thank you all for your participation today. You may now disconnect.