First Solar, Inc. (FSLR) Earnings Call Transcript & Summary

Good afternoon, and welcome to First Solar's Second Quarter 2026 Earnings Conference Call. This call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] 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.

Good afternoon, and thank you for joining First Solar's Second Quarter 2026 Earnings Call. With me today are Mark Widmar, Chief Executive Officer; and Alex Bradley, Chief Financial Officer. Mark will begin with second quarter highlights, followed by Alex, and then we'll open the line for questions. Today's discussion contains forward-looking statements. Actual results may differ materially due to risks and uncertainties as described in our earnings press release and other SEC filings and the earnings material available at investor.firstsolar.com. We undertake no obligation to update these statements due to new information or future events. We will also reference certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are in our earnings press release and presentation. This non-GAAP financial information is not intended to be considered in isolation or as a substitute for financial information presented in accordance with U.S. GAAP. With that, I will turn it over to Mark.

Thank you, and good afternoon. Beginning on Slide 4. We delivered both record second quarter and first half sales volume and improved financial performance relative to the prior year. During the quarter, we generated over $1 billion in net sales, expanded gross margin to approximately 57% and delivered strong adjusted EBITDA performance. We also surpassed an important milestone for First Solar, exceeding 100 gigawatts of cumulative module sales globally. We view this as a reflection of the trust customers have placed in First Solar over the more than 2.5 decades and the durability of our technology and manufacturing platform. We ended the quarter with approximately 45.1 gigawatts of contracted backlog. We delivered -- with deliveries extending through the end of the decade, demonstrating the demand for our differentiated technology platform, domestic manufacturing footprint and delivery certainty. Turning to manufacturing. Our U.S. facilities continue to operate at high utilization rates during the quarter. In South Carolina, the first phase of the finishing facility remains on track to begin production in the second half of 2026, with equipment installations progressing as expected. For the second phase, we now expect completion in mid-2027. While the revised time reflects a number of factors associated with optimizing the facilities launch, it also enables the earlier incorporation of CuRe technology. We are pleased with the performance of CuRe with both high-volume manufacturing at our Perrysburg facility and performance data from field deployments across multiple climates exceeding expectations. We believe incorporating the technology closer to the onset of the facility's commercial launch will simplify execution, accelerate value realization and enhance customer value and the facility's long-term financial performance. Once completed, the South Carolina facility is expected to provide up to 3.5 gigawatts of finishing capacity for modules initiated at our international manufacturing sites, giving us greater flexibility to optimize our supply chain flexibility while also optimizing freight, tariffs, domestic content and Section 45X economics. With respect to our international manufacturing fleet, production planning and utilization levels in Malaysia and Vietnam continue to be influenced by U.S. market demand drivers and economics, including the pending Section 232 polysilicon and derivative investigation and tariffs. We expect greater policy clarity will help inform the long-term operating profile for the approximately 1.8 gigawatts of fully finished international capacity that remains available after accounting for capacity being used to produce semi-finished product destined for our new South Carolina finishing line. A note on manufacturing optimization and allocation. Approximately 41 gigawatts of our 45 gigawatt backlog includes some form of domestic content requirements. These requirements vary significantly and range from requiring exclusive supply from U.S. fully integrated factories to blending U.S.-made supply with both fully integrated domestic factories as well as product from our upcoming South Carolina finishing line to a domestic content points requirement, which is factory-agnostic, allowing blending of product from across our global fleet. We therefore continually balance and refine our module supply and demand allocation across the fleet to meet customer contractual obligations, optimize factory throughput and optimize gross margin. This typically means that over a period of time, we will seek to maximize production and sales firstly, from our fully integrated U.S. factories; secondly, from our South Carolina finishing line; and thirdly, from our international facilities. As it relates to prospects, we continue to advance our development program for this potentially significant technology platform. Our previously announced development line continues to progress -- to process improved efficiency and reliability attributes on smaller form factor modules, while our Series 6 form factor pilot line remains on schedule and is expected to reach operational readiness in the first half of 2027. Our continued progress has given us confidence as we continue to invest substantial capital in our efforts to realize the commercialization of prospects. Earlier today, we published our latest corporate responsibility report, reinforcing our conviction that how and where solar technology is made matters. The report details how we create enduring value by developing, sourcing, manufacturing and recycling solar modules domestically, supporting jobs and communities, strengthening industrial capacity and help ensure the benefits are realized locally. It also highlights our continued focus on responsible manufacturing, supply chain transparency, workforce development and resource efficiency. The report reflects the effectiveness of a business model where [ corp ] responsibility isn't a construct, but the default. Before turning the call over to Alex, I want to briefly address the market and policy environment and how it is informing our commercial approach. The underlying drivers for utility-scale solar remain intact, including load growth, data center development, electrification, aging generation assets and the need for affordable, scalable new capacity. The policy landscape continues to evolve, particularly as it relates to pending outcome for the Section 232 polysilicon and derivatives investigation as well as final FEOC regulations. In this environment, we continue to prioritize pricing, contract quality, appropriate risk allocation and long-term value over short-term bookings volume. Relative to the beginning of the year, we are seeing increased customer engagement. And as policy clarity improves, we believe First Solar remains well positioned to capitalize on these opportunities. With that, I'll now turn the call over to Alex to discuss our bookings, financial results and outlook.

Thanks, Mark. Beginning on Slide 5. As of June 30, 2026, our contracted backlog totaled 45.1 gigawatts with an aggregate transaction value of $13.6 billion, exclusive of technology adjusters, with scheduled deliveries extending through 2030. Early this month, Cypress Creek Energy broke ground on the Steel River Energy Center in Arkansas, a project utilizing First Solar modules and previously included in our contracted backlog. The initial phase is expected to provide approximately 1.6 gigawatts of solar generation capacity and 1.9 gigawatt hours of battery storage to support Google's growing energy needs with the opportunity for future expansion. Since our last earnings call, we recorded approximately 1.9 gigawatts of additional U.S. gross bookings at an average selling price of approximately $0.36 per watt, inclusive of applicable technology adjusters. While near-term customer activity continues to be influenced by the current policy environment discussed by Mark, our fully integrated domestic manufacturing fleet remains substantially committed through 2028, providing a high degree of volume and pricing visibility. Given the limited amount of uncommitted domestic capacity available over the next several years, we continue to be disciplined in evaluating incremental contracting opportunities. We also initiated our first customer notifications related to contractual CuRe adjusters during the quarter, an important milestone in beginning to translate CuRe's performance benefits from potential ASP adjusters into backlog value and future revenue realization. We expect the contribution from these adjusters to increase as CuRe deployment expands across our contracted portfolio. As a reminder, we expect limited ASP upside from CuRe sales in 2026, largely as a function of contractual notification deadlines relative to the timing of the decision to recommence CuRe production. Turning to India. Our guidance continues to assume production is largely sold domestically in a short-cycle book-and-bill market, with the factory operating at high utilization rates. India gross bookings during the first half of the year totaled approximately 1.1 gigawatts and average selling price of approximately $0.20 per watt. Given the shorter contracting cycle of the domestic Indian market, booking economics generally provide a reasonable indicator of near-term revenue realization, subject to [ no foreign currency book ]. Turning to Slide 6. Net sales for the second quarter were approximately $1.06 billion, a decrease of approximately 4% year-over-year. The decrease was primarily driven by lower revenue associated with customer contract terminations recognized in the prior year period, partially offset by higher module volumes sold. Gross margin was approximately 57%, an increase of approximately 12 percentage points compared to the second quarter of 2025. The increase was primarily driven by an estimated $89 million net IEEPA tariff-related benefit, a higher mix of modules qualifying for Section 45X tax credits and lower logistics costs. The net IEEPA per tariff-related benefit reflects our current estimate of expected recoveries related to commercial obligations and other tariff-related considerations and remains subject to refinement as additional information becomes available. These benefits were partially offset by lower termination related revenue and higher duties and tariffs. While logistics costs improved year-over-year, the quarter includes higher over-the-road freight costs driven by overall capacity tightening and volatility in diesel costs. These impacts were partially offset by higher sales rate recovery. Operating expenses were approximately $155 million, including $76 million of R&D expense. R&D increased year-over-year, primarily reflecting continued investment in [ Propco ] development, the impairment of certain R&D equipment that is no longer expected to be used as part of our technology road map. Net income was $423 million, up approximately 24% year-over-year. Adjusted EBITDA was $644 million, above the high end of our previously communicated Q2 preview range, with an adjusted EBITDA margin of 61%. Moving to Slide 7. We ended the quarter with approximately $1.7 billion of net cash, providing substantial balance sheet strength and financial flexibility while remaining within our targeted long-term cash range of $1.5 billion to $2 billion. Operating cash outflows year-to-date were $360 million, reflecting first half working capital dynamics and improved compared to outflows of $458 million during the first half of 2025. First half capital expenditures were $280 million, primarily supporting our South Carolina finishing facility and technology investments. We completed the full prepayment of our India DFC loan during the quarter. Turning to Slide 8. Our full year 2026 guidance remains unchanged. With that said, our guidance now assumes a net tariff impact of $60 million to $80 million, with updates including the previously mentioned net IEEPA recovery and the assumption of Section 301 tariffs in the second half of the year. We also forecast offsetting updates between production start-up expense and R&D expense, as well as incremental freight costs due to certain nonrecoverable domestic trade expenses above our previously assumed forecast, largely driven by changes in module delivery locations. And note, in some cases, domestic freight costs are now approaching international shipping economics. For the third quarter, we expect volumes sold between 3.9 and 4.5 gigawatts and adjusted EBITDA between $625 million and $775 million. In summary, our first half performance and reaffirmed outlook reflect the strength of our strategy of reshoring and scaling domestic manufacturing, progressing our technology road map and maintaining a selective approach to new bookings in light of key pending trade and policy dissemination. As we look ahead, our priorities remain unchanged. We remain focused on disciplined execution, serving our customers, advancing our technology road map, managing capital prudently and maintaining financial flexibility. And with that, operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Jon Windham with UBS.

So obviously, the SEC had a ruling about solar inverters a couple of days ago. And I think on one side, it goes along [ the shaft ] serious the government is in promoting domestic content within -- especially electrical equipment, hardware, which is obviously very good for you given your position in domestic solar modules. But just curious if you have any early thoughts on potential impact on broader solar installations and the ability to work around the industry to work around that provision? Thank you so much. .

Yes. Thanks, Jon. I think if it continues the same of -- our U.S. government trying to ensure that we don't have any overreliance on that serial countries. And obviously, China being one of them in particular. I think the good thing about this is that the industry has started to get ahead of trying to find domestic supply chains, comprehensive domestic supply chains. We obviously were an early industry leader in that regard of reshoring manufacturing and creating a supply chain here in the U.S. for our U.S. operations. You're seeing this now really across all components of equipment suppliers, all the way up even to try to find localization for the battery supply chain as much as you can. So I don't see it being a constraint near term. I think the current models that [ and the shipping ] into the U.S. will continue to be allowed to be shipped into the U.S. I do think there is a theme or a message there, though, that, that scrutiny may be stepped up as we move forward. But I think it just sends another great signal to domestic manufacturers that look, we need [ to before ], we need domestic supply chain resiliency to enable not only the solar industry aside, but really all of the industries that as we reindustrialize in the U.S. economy, right? So again, I think it's a good indicator of a continuing theme and message that this administration has and we fully support it.

Your next question comes from the line of Brian Lee with Goldman Sachs & Co.

I just had two. I guess, first, on this Google-Steel River project, I appreciate you guys commenting on that. I might have missed it, but how much of the 1.9 gigawatts in U.S. gross bookings came from that 1 project in the quarter? And then how much more bookings potential exists on that project side? And then your bigger picture, maybe speak to how you're seeing general interest from that hyperscaler data center community? And then second question I have is just kind of the customary latest thoughts, timing, visibility into Section 232, how you're viewing the potential for floor prices in the $0.40 per watt or higher range? And then how quickly do you move on your bookings funnel in Southeast Asia strategy once you get clarity on this presumably, hopefully in the next few months?

All right, Brian, I'll try to take kind of the first two, and then Alex will talk maybe a little bit about the views of Southeast Asia. So make sure it's clear on the project that we announced with our partner that we supplied models to for Cypress Creek, that is already in our bookings, okay? So that was just a highlight. It's a great project. If you actually look at some of the more recent announcements that have been made over the last several weeks, I think you kind of see a theme there. You've got a very large project with Cypress, the one that we've referenced that it will be Phase 1 of kind of call it the 1.6 gigawatts, then it goes to Phase 2, which we believe is about 2.5 gigs. So that's a very large project. And I think the battery component of that as well is going to be north of 2 gigawatts of -- megawatt hours from a battery standpoint. Really important strategic project. It's there to support Google. We have 2 other projects that have been announced over the last couple of weeks, 1 with Terra-Gen, which was about 1.4 gigawatts. And then we had another 1 with [ Panama ], which was another gig plus. So those 3 projects that have been announced recently are about 5 gigawatts of capacity. The [ Panama ] -- part of the [ Panama ] volume was actually announced last quarter. So when we did the announcement last week -- last quarter around bookings volumes, which I think we had in total around [ 1.4 ], [ Panama ] was actually included in that volume. But I think it's a great message that the demands there, half of that volume of that 5 gigawatts I referenced is directly communicated and tied to Google as a hyperscaler. The other 2.5 gigs, I haven't disclosed the counterparties. But if you look at the verbiage around the announcements on that, they'll reference a very large corporate account, 1 of the largest companies in the U.S. You can kind of get a sense of the likelihood of who that counterparty is going to be for that project. So strong demand for continued demand for hyperscalers, really strong relationships and partnerships with First Solar to support those types of strategic projects that really kind of thrive on the importance of certainty. Right? Those projects are strategic. They're important. They obviously include stores as reflected in the Cypress Creek project. As I've always said, the first thing you need to do is you're building out your projects and derisking is that you need to make sure that you have a reliable partner who can make sure the photons become electrons. Without that, the whole project is going to sit at risk. And we can deliver that certainty and that great technology and that reliability. So we're seeing that in the marketplace and continued strong interest, but driven by -- as currently still some [indiscernible] demand from hyperscalers. As it relates to 232, I'll take the pricing piece and then Alex will talk to kind of how we throw that into our views around Southeast Asia. Look, it's still -- there's still a lot of views out there. I think everybody has a view of how the construct may be with minimum import price and then maybe with the tariff on top of that, there's some views of whether there's quarters or not. All I can say is still evolving. And we do believe it will be constructive. I don't want to give kind of our internal read of what we think it potentially could be because there's still a lot of open pieces. I can say that we're still in constant contact with the appropriate parties at USTR and commerce to continue to bring our voice into the conversation. And we're still optimistic that the outcome will be constructive. And we've used it as a reason to be disciplined, and we'll see what happens once it's finally announced. And there's demand that's still sitting there on the sidelines. If you look at our cadence and our momentum around our bookings, just here in the month of July, we booked almost 2 gigawatts in the U.S. at very good prices, as Alex indicated. There's about 2 more gigawatts, north of 2 gigawatts, it sits into a contracted subject to CP. And then I've got another 2 gigawatts of active conversations with customers that there's a high probability we can close through by the end of the year. So -- and we'll see how much that gets further catalyzed by decision around 232.

Brian, as it relates to [ sales days ] capacity, we talked on the last couple of calls around looking at this a bit like an option. So we're running somewhere around $30 million quarter of underutilization associated with running Southeast Asia manufacturing well below its theoretical capacity, about half of that cash, about half noncash. Given that we've been holding through the first half of the year, making a decision on the long-term future there pending the outcome of 232, it makes sense to continue to do that. So I still view this as we're waiting for the outcome of that policy. And just to frame the amount, if you were to go back and look at the slides we put out in our February call, it shows you nameplate capacity of production. So we originally had about 7 gigawatts of total capacity sitting in Malaysia, Vietnam. About half of that is going to be dedicated to production that will feed our new finishing line in South Carolina. So there's about 3.5 gigawatts left. Of that, we did take out some tools, bring them over to the U.S. to reuse in our [ Brodsky ] work. So ultimately, it leaves us with about 1.8 gigawatts of end-to-end fully finished capacity that we could ramp up across Malaysia, Vietnam. So it's about that 1.8 that we're talking about. We're thinking -- we're holding a decision on pending the outcome of the 232.

Your next question comes from the line of Praneeth Satish with Wells Fargo.

Maybe just going back to Section 232. Obviously, there's a lot in play, and I recognize that. But we've heard and you mentioned the potential for waivers or quotas being allowed for certain domestic cell producers that could exempt them from some of these policy changes. I guess I'm just curious, conceptually, from your perspective, if some of these waivers are granted, do you think that could mute some of the price upside from Section 232? Or do you still see a constructive supply/demand set up? Just trying to think conceptually, how you think about that.

I mean, obviously, any modifications versus a 100% restriction will create some potential dilutive impact to the strategic incentive to 232. It also depends on if there is a waiver or some type of quota of some type. I mean, how big is it? Does it scale down over time? I mean, is it something that as it looked at it initially? And then that will walk down to maybe complete elimination of it. So it's hard to give you a great insight to the impact. Clearly, we're not -- we're advocating to try to minimize any of those impacts and as well as they should only be a limited duration to the extent that they're enabled or allowed in all. We really want to create a domestic supply chain. And any type of workarounds that you get will disincentivize the investments that need to be made here in the U.S., right, to scale up those capabilities that -- and I think it's much easier for people to understand the policy environment certainty versus creating uncertainty by waivers of forwards and those types of things that they can create. So we'll have to wait and see. We're firm in our position that we don't believe that they should be allowed, but we'll have to see how the final outcome is.

And there's some history here, too. If you look back at the Section 201 tariffs and the exemption was put in face-by-facial technology. It was clear that, that exemption effectively gutted that provision. So I think the administration has seen how those exemptions can effectively underline what they're trying to do. If there's a belief that the 232 provides a need around the national security interest, it doesn't make a lot of sense to have a carve-out or a quota piece associated with a national security interest provision.

Got it. That makes sense. And then if we say that Section 232 goes through, you get some kind of reasonable outcome, positive outcome. You kind of mentioned that there's 4 gigawatts. It sounds like 4 gigawatts plus of kind of pending deals for the second half. But do you get the sense that there's more demand sitting on the sidelines that's waiting for policy clarity? And once we get clarity, you could see that number move up significantly higher? And then just a point of clarification. I guess, again, if Section 232 goes through, you get a good outcome. On the Southeast Asia capacity, would you bring that volume into the U.S. as finished products? Or would you -- would it come through as unfinished, and you would expand your U.S. finishing line?

So I guess, on the 232, and I'll let Alex take the other question around how we think through Southeast Asia and whether it comes in has finished or partially finished in order to expand capacity for finishing here in the U.S., I'll let Alex take that one. The -- there are clearly are customers that are sitting on the sidelines. There is absolutely no doubt about that. And even some of these, that will -- even some of the stuff subject to CP is somewhat tethered to posting a security. So 1 of the challenges that, especially as you get longer dated in terms of contracting some of this volume -- and we are really trying to enforce having cash and liquid security against new bookings. That's been a priority of ours. In some cases, some of the counterparties can't post to the required security now, but working towards having that available, and makes sense that the security as opposed have been and kind of closes out of some of the CPs. So that's a piece of it. But there's clearly people sitting on the sidelines, waiting to see what happens. We have a couple of counterparties that are they're hedging their way. And they know that the risk is the ASPs may go up. But at this point in time, they're trying to wait and see how it plays out. And again, kind of a conversation last time are the quotas or not and what are the options they have and so forth. So that's all in is in the mix right now. And as we've always said, the best thing for this industry is we just have clarity and certainty. 232, we just really need a decision on that because we can all [indiscernible].

As it relates to what we could do with the Southeast Asia facilities, we could bring fully finished product in subject of demand and pricing in the U.S. It's not only a function of where the 232 sits, it's also a function of where other tariff provisions sits. So right now, we have a Section 301 that's just gone into effect replacing the Section 122 tariffs that were in effect to the first half of this year. Those relate to forced labor. There is still risk around 301 related to excess capacity. So that investigation is ongoing. Pending the outcome of that obviously will determine what the total tariff impact could be then to product coming in from Malaysia, Vietnam. We could bring some of it in as semi-finished WIP share product and finish it in our existing U.S. facilities. There's a limited amount, probably in the couple of hundred megawatt range of incremental capacity in our finishing lines across existing fleet in Ohio. So we could do a little bit of that. But it's not effective to run Malaysia at lower throughput as you're seeing with the unutilization costs we're having this year. So really, what we're looking for is an ability to run that factory at close to full capacity. So then either it's selling fully finished international product, subject to where tariffs end up, or there is the potential to build another finishing line in the U.S. that's subject again to finding available site with power and the time it would take to build that out. So I think that's less likely, but it is still an option.

Your next question comes from the line of Julien Dumoulin-Smith with Jefferies LLC.