First Solar, Inc. Q1 FY2025 Earnings Call

Good afternoon everyone and welcome to First Solar's First Quarter 2025 Earnings Call. This call is being webcast live on the Investors Section of First Solar's website at investor.firstsolar.com. All participants are in a listen-only mode and please note that today's call is being recorded. I would now like to turn the conference over to your host, Byron Jeffers, Head of Investor Relations. Please go ahead, sir.

Good afternoon and thank you for joining us on today's earnings call. Joining me today are our Chief Executive Officer, Mark Widmar; now Chief Financial Officer, Alex Bradley. During this call, we will review our financial performance for the quarter and discuss our business outlook for 2025. Following our remarks, we will open the call for questions. Before we begin, please note that some statements made today are forward looking and involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We undertake no obligation to update these statements due to new information or future events. For a discussion of factors that could cause these results to differ materially, please refer to today's earnings press release in our most recent annual report on Form 10-K as supplemented by our other filings with the SEC, including our most recent Form 10-Q. You can find these documents on our website at investor.firstsolar.com. With that, I'm pleased to turn the call over to our CEO, Mark Widmar. Mark?

Good afternoon and thank you for joining us today. Beginning on Slide 3, I will share some key highlights from Q1 2025. From a commercial perspective, since the previous earnings call, we have secured net bookings of 0.6 gigawatts at a base ASP of $0.305 per watt, excluding adjusters and Indian domestic sales. As a result, our contracted backlog today stands at 66.3 gigawatts. In Q1, we recorded 2.9 gigawatts of module sales, which is in line with what we forecasted on the previous earnings call. Our Q1 earnings per diluted share came in below the low end of our guidance range at $1.95 per share, primarily due to a greater portion of our Q1 sales being forecasted to be international versus U.S. product. Alex will provide further details regarding our financial results later in the call. From a manufacturing perspective, we produced 4.0 gigawatts in Q1, comprised of 2 gigawatts of Series 6 and 2 gigawatts of Series 7 modules. We completed a limited commercial production run of modules employing our CuRe technology from our lead line in Ohio during the quarter and continued to deploy these modules in both commercial and field test sites. Initial data indicates the enhanced energy profile expected from the superior temperature response and improved bifaciality of our CuRe technology is being realized. Furthermore, the laboratory accelerated life testing is confirming the industry's leading annual degradation rate. Our domestic capacity expansion has advanced during the quarter as we continue to ramp up our Alabama factory. At our Louisiana facility, construction of the building was completed, and equipment installation and commissioning are fully underway. The facility remains on track to begin commercial operation in the second half of this year, and once ramped, it is expected to increase our U.S. nameplate manufacturing capacity to over 14 gigawatts by 2026. Turning to Slide 4, I would like to focus on recent policy and trade developments. We continue to experience significant near-term uncertainty from the budget reconciliation process and its potential impact on the Inflation Reduction Act, clean energy, tax credits, and evolving trade landscape as the administration implements its new tariff initiatives. However, despite these near-term challenges, we believe on balance, the political and trade environment continues to be overall favorable from a First Solar perspective. While the implementation of certain new trade policies was a possibility with the change in administration, the new tariff regime introduced earlier this month has created significant challenges for 2025 that were not known at the start of the year. We have elected to update our guidance range, assuming the current applicable 10% universal tariff structure remains throughout the year. The lower end reflects both a range of non-tariff related risks to our operations as well as the implications from the previously announced, but temporarily suspended country-specific reciprocal tariff structure. We currently operate international manufacturing in India to serve both the Indian and U.S. markets and in Malaysia and Vietnam, which almost exclusively serve the U.S. market. The President's implementation of reciprocal tariffs earlier this month, with rates of 26%, 24%, and 46% applicable to India, Malaysia, and Vietnam respectively, creates significant economic headwinds for our manufacturing facilities in these countries selling into the U.S. market. While the subsequent 90-day pause to the effectiveness of these tariffs and the application of a 10% universal tariff partially mitigates the impact, the lower rate would still result in a meaningful adverse gross margin impact to sales into the United States, absent the duty being fully passed through to the module buyer. In addition, the uncertainty surrounding whether the reciprocal tariffs will be reinstated after this 90-day pause or whether the pause will be indefinite or whether a different tariff regime will be put in place has created a challenge in quantifying the precise tariff rate that would be applied to our module shipments into and beyond the second half of this year. Our sales contracts for international volumes shipped to the United States typically include provisions intended to mitigate the adverse gross margin impact from changes in law due to the implementation of tariffs on modules. These provisions, which may be invoked at First Solar’s discretion, come in a variety of types, including some where First Solar may terminate the contract if it chooses not to absorb the new tariffs. Others either require the customer to absorb, or both parties may share up to a certain amount of the tariff before either party may terminate. To the extent if the contract is terminated based on these provisions, the agreement would effectively unwind, resulting in a corresponding reduction to our backlog, as well as a return to the customer of any related deposits. Regarding our overall backlog of 66.1 gigawatts as of March 31, 2025, we have approximately 13.9 gigawatts of forward contracts for delivery of international products to the United States. After accounting for the remaining volume sold in 2025 at the low end of our revised guidance range that Alex will later discuss, there remains a forecasted year-end net 12 gigawatts of international product in the backlog that may be terminated based on these tariff-related provisions. Note, if First Solar elects to absorb the tariff costs beyond its contractual obligation, no termination right exists, and the volume will remain in the backlog. Despite these near-term challenges presented by the new tariff regime, we believe the long-term outlook for solar demand, particularly in our core U.S. market, remains strong, and that First Solar remains well positioned to serve this demand. This belief is based on our unique profile compared to peers. We are the only U.S. headquartered PV manufacturer of scale; by the end of this year, we will be the only one with a fully vertically integrated U.S. solar manufacturing presence across three states. We recognize that these incentives are crucial not just for producers but also for consumers, as they help to reduce utility bills and support the stability and growth of the solar industry in the United States. Recent analysis suggests that U.S. electricity demand will grow significantly in the coming years, which substantiates the importance of a consistent and reliable solar supply chain for meeting this demand.

Thanks, Mark. Beginning on Slide 5. As of December 31, 2024, contracted backlog totaled 68.5 gigawatts with an aggregate value of 20.5 billion, or approximately $0.299 per watt. In Q1, we recognized sales of 2.9 gigawatts and contracted an additional 0.5 gigawatts of net bookings, resulting in a quarter end contracted backlog of 66.1 gigawatts with an aggregate value of 19.8 billion, or approximately $0.30 per watt. Since the end of the first quarter, we've entered into an additional 0.2 gigawatts of contracts, increasing our total backlog to 66.3 gigawatts. Of this total backlog, as Mark previously mentioned, 13.9 gigawatts as of today and forecasted 12 gigawatts by year-end 2025 are under contracts containing provisions that, if invoked by First Solar at its discretion, serve as a circuit breaker to prevent meaningful gross margin erosion in a tariff regime scenario such as was announced earlier this month. A substantial portion of the overall backlog includes the potential to increase the base ASP through the application of adjusters contingent upon achieving milestones within our current technology roadmap by the expected delivery date of the product. As reflected on Slide 6, our total pipeline of potential bookings remains strong, with bookings opportunities of 81 gigawatts, an increase of approximately 0.7 gigawatts since the previous quarter. Our mid to late-stage bookings opportunities have increased by approximately 2.6 gigawatts to 23.7 gigawatts, including 17.3 gigawatts in North America and 6.1 gigawatts in India. I will now cover our financial results for the first quarter. We had 2.9 gigawatts of module sales in Q1, of which 1.75 gigawatts was domestically produced U.S. volume. This resulted in net sales of 0.8 billion, reflecting a 0.7 billion decrease from the previous quarter. The decrease in net sales was due to an anticipated seasonal reduction in the volume of modules sold during Q1. Gross margin was 41% in the first quarter, up from 37% in the prior quarter. This increase was primarily driven by a high mix of modules sold from U.S. factories, which qualified as Section 45X tax credits, partially offset by higher module production costs of domestic U.S. module volume. Despite the quarter-over-quarter increase, our Q1 gross margin fell below our forecast. Although we met our guided shipment and revenue numbers, a mix of U.S.-made modules sold approximately 250 megawatts less than expected at the midpoint of our guidance. SG&A, R&D, and production startup expenses totaled 123 million in the first quarter, reflecting an increase of approximately 12 million compared to the fourth quarter. This increase was primarily due to a higher reserve for potential credit losses as a function of an increased accounts receivable balance, as well as increased production startup expenses for the ramp-up of our Louisiana facility. Our first quarter operating income is 221 million, which includes depreciation, amortization, and accretion of 126 million. The combination of the aforementioned items led to the first quarter earnings per diluted share being $1.95. Our year-end 2025 net cash balance is anticipated to be between 0.4 billion and 0.9 billion. As a reminder, our net cash guidance does not account for the sale of our 2025 Section 45X credits, but as in prior years, we will continue to evaluate options for potential earlier monetization.

Thank you, sir. We'll take the first question from Philip Shen, ROTH Capital Partners.

Hi everyone, thanks for taking my questions. I have a few categories here. First one on the outlook for bookings. In Q1, you guys did 600 megawatts since the Q4 call at $0.305 a watt. Since the tariffs, what have the conversations been like with customers? Have you been able to generate bookings or have things slowed down because of the tariffs? Number two, this topic is the recent underperformance of the modules. Can you just share a little bit more about what's going on here? You talked in the prepared remarks about the third-party report on the production line fixes. Can you share a little bit more about the details? And thus far, you've been focused on the Series 7 issues. But in our checks, some customers are flagging some underperformance of Series 6. So, can you help frame and quantify the Series 6 issues as well in comparing contrast with Series 7? And then finally, when do you expect customers to start taking more smooth delivery again? Because I recall from the last earnings call, you have a new $200 million to $300 million warehousing expense and so I was wondering, because you're manufacturing linearly, when do you think that kind of resolves? Do you think it's more 2026 and we should expect that to maybe not resolve in 2025? Thanks guys.

Okay, Phil. Look, I guess, on the bookings side and then the impact of the tariffs. Clearly, there's been more momentum and customers reaching out even some we’ve done business with in the past, but haven't necessarily sold meaningful volume to over the last couple of years. Again, there's 2 events that have happened. One is the Solar 3 outcome. The other is the universal tariffs and the potential implications that they are going to have as well as looking across the horizon, what are the reciprocal tariffs look like. I think everybody is trying to figure out how to de-risk as much as they can from tariff exposure. So First Solar, obviously, given our domestic capacity is kind of a partner of choice when it comes to that. So clearly, activities have picked up. The question we still have to debate and discuss is what do we think is the appropriate market ASP for that opportunity and really, we don't know until we understand to what extent there's any potential impact or changes because of the budget reconciliation on the IRA. As it relates to Series 7 and your comment around the performance, we said in the prepared remarks that we have completed, as we indicated we would, the third-party report. The third-party report has validated that the root causes were identified appropriately and the appropriate corrective actions have been implemented into our production process effective back last year when we indicated the changes had been made and that information has been shared with customers who have made inquiries that is being shared with independent engineers and banks and others who need that type of information. I'll stand by our product to the fullest extent that's required under our warranty obligation that we mutually agreed to with our customers at the time that we ship the product. It starts with the requirement of sending us the modules, and we will test the modules appropriately under the requirements that are consistent with AIC standards that both parties have agreed to, and to the extent those modules are below warranty thresholds including measurement error and few other things, then we'll honor the obligation to replace the module. As it relates to customer deliveries and the cadence and speed, the uncertainty since the last earnings call has clearly gotten worse with the implications at the project level. The impact on batteries, in particular, with the tariffs that most battery cells are coming from China and the rate at which those tariffs are being applied, make those projects potentially uneconomical. I would not expect a meaningful delta in terms of sell-through or timing of velocity of shipments to our customers because of that level of uncertainty.

Our next question is Andrew Percoco for Morgan Stanley.

Thank you so much for taking the question. I wanted to pick up where you left off there. Just a little surprised I guess to see the level of volume downside in the guidance this quarter. Obviously, understanding that there was going to be some margin headwinds just given your international presence, but the volume piece is a little bit surprising here. So just curious, like, can you provide any more details around the conversations you're having with your customers? Is it to your point mostly because of the battery storage supply chain? Or are there other factors contributing to that? I guess as a follow-on question, how much of the remaining volumes that you're delivering this year, expected to come from your U.S. facilities versus international, I guess is a way to test the risk there. And then my last question is just around, Alex you mentioned working capital headwinds in the first half of the year. Have you changed your strategy or thought process around tax credit transfer timing or potential need for third-party capital just given the uncertain environment that you guys are operating in?

Yes, I'll take the first one, and then I'll let Alex do the mix of shipments for our guide on international versus domestic. Our guide reflects a realization of tariffs are real, and they have consequences. Right now, what I'm being told is that there will be a 10% universal tariff in place up until July 9. At that point, the country-specific reciprocal rates would be reestablished and looking at the impact of those rates using Vietnam as an example, of 46%, it becomes uneconomical to ship a product with a 46% tariff into the U.S. and be able to sell that to an end customer. We have not engaged yet meaningfully with customers around the impact of tariffs. Some conversations that I've had with customers at this point in time, for example, in 2026. I've told them it is probable that I will not be manufacturing in Malaysia and Vietnam at those rates were to be imposed. They are very concerned because now they have volumes they're depending on for next year that they may not have modules to build their projects again. So, I can't tell you for certainty what the outcome of these tariff conversations are going to be. We've chosen to say let's assume that the fundamental economics for First Solar is not going to carry a meaningful portion of those tariff rates.

Yes, on the volume piece. The U.S. volume or U.S. manufactured volumes sold is unchanged. So that's 9.5 to 9.8 gigawatts, same as it was at the last call. What's changed there is the assumption that more of that will now be sold in the India domestic market versus being shipped from India to the U.S. The total volume sold is unchanged. We brought the cash guide down by 300 million on the top and the bottom end. We brought that range of CapEx to be wider. So, previously, our estimates were 1.3 to 1.5 billion; it is now 1 to 1.5 billion. This is a reflection of if we are in the lower end scenario of the guidance, we will ratchet back CapEx spend a little bit. The cash numbers are lower than they have been historically, so we are managing higher inventory and higher IRA balances than I would like at the moment. These are forecasted to reverse out in the second half of the year, again, assuming we continue to sell through in the scenarios we place today and we don't have other shocks to the system.

The next question comes from Kashy Harrison, Piper Sandler.

Good afternoon and thank you for taking the questions. So, if we find ourselves in a situation where the final tariffs from Malaysia and Vietnam are 30% versus 20% versus 10%, can you help us think about what you do with those assets? Is there an ability to bring some of that equipment to the U.S. for more U.S. manufacturing? And how can we think about the deposits that currently are on your balance sheet that relate to the 12 gigawatts that you outlined in the prepared remarks?

I'll let Alex take the deposit question. In terms of Kashy, there's a lot that we can do with those assets. It's a matter of understanding the environment against which we can optimize. There are several key provisions included in the IRA that we are obviously interested in and want to see what happens with. One is the foreign entity of concern and what the implications are of that; another is what happens with the 45X tax credits. Once we know that, we can say how we are going to optimize these assets.

By year-end, we'll have about 12 gigawatts in the backlog that has these tariff revisions that could theoretically be at risk. If you look at that, it's somewhere in the region of $3 billion of revenue, and if you look at the average deposit we have in the backlog, that's about $1.9 billion against the numbers that we showed being about 10%. So in theory, you've got about $300 million that could be at risk. A couple of things to comment on: we've yet to engage with many customers, especially those with projects in the near term. Many customers want this product; they don't want to cancel.

And our next question comes from Brian Lee, Goldman Sachs.

Good afternoon and thanks for taking the questions. I had 2. A lot has been covered here. But I guess on the guidance, just wanted to understand the strategy here. At the high end, you mentioned 1.8 gigawatts from Southeast Asia is still included even with the 10% universal tariff. So, is the approach you're just taking lower margin there for this year? Or are you actually planning to pass some of those costs on and that's why you're keeping it in the high end of the guide?

The strategy we've taken is on the high end, we're assuming 10% tariffs and that those would be all for us in our financials. However, that isn’t our approach and strategy with customers. We do have some inventory in the U.S. prior to the tariff announcements. We will have discussions with customers around the tariff applications of that. As for 2026, I think it's too early to say what we would do.

Yes, we are doing some of it this year. Most of it has already happened. So we don't have a lot yet currently in the second half, but we're evaluating potentially expanding it depending on how the conversations with customers go.

The timeline for getting that finishing line up and running is contingent upon having a building. It's not as complex as a full length production facility for us, so you're probably within 9 to 12 months from making a decision if everything goes well. It's going to depend on the reconciliation process timing.

Everyone, our final question today comes from Julien Dumoulin-Smith, Jefferies.

Hey, good afternoon, thank you very much for the time, I appreciate it. Thanks for covering so much. Just following up a little bit on the 12 gigawatts guys. Relative to the 66 gigawatts of backlog that we're talking about, how do you think about the re-pricing risk on the balance here?

As it relates to the remaining volume, there's no re-pricing risk on that. It's either all domestic product for the U.S., or it’s de minimis in the case of India. The 12 gigawatts will be tied to the conversations we have with customers. As indicated, I told a customer that if the reciprocal tariffs are imposed, I will not have the product for them.

The decision tree regarding the finishing line will effectively be done in partnership with your customers.

Thank you, sir. And everyone that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.