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

Good afternoon, and welcome to First Solar's Third 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 call over to your host, Byron Jeffers, Head of Investor Relations.

Good afternoon, and thank you for joining us. With me today are Mark Widmar, Chief Executive Officer; and Alex Bradley, Chief Financial Officer. Mark will begin with an update on the business, followed by Alex with our financial results and outlook. Before we begin, today's discussion will include forward-looking statements that are subject to risks and uncertainties. Additional information regarding these risks and uncertainties can be found in our earnings press release, other SEC filings and the earnings material available on our Investor Relations website at investor.firstsolar.com. We undertake no obligation to update any of these forward-looking statements as a result of new information or future events. During today's call, we will also discuss certain non-GAAP financial measures. Reconciliation of these measures to the most directly comparable GAAP measures are provided in our earnings press release and accompanying presentation. We encourage investors to review those reconciliations as non-GAAP measures should not be considered in isolation or a substitute for financial information prepared in accordance with U.S. GAAP. With that, I'll turn it over to Mark.

Thank you, and good afternoon. Getting on Slide 4. We continue to execute with discipline this past quarter advancing our U.S. manufacturing expansion, care deployment and perovskite R&D program while delivering strong financial results. We generated approximately $1.2 billion in net sales, expanded gross margin to approximately 58% and delivered adjusted EBITDA of $744 million. Operationally, our continued CuRe deployment across the fleet is being executed through a disciplined learning-based approach that began with our Perrysburg Series 6 conversion in Q1 of this year. That approach now extends to our first Series 7 conversion in our India facility expected to begin in the first quarter of 2027, which marks the start of Series 7 CuRe replication across the fleet. Beginning in India allows us to first refine the deployment process in a low earnings impact environment before replicating across our U.S. Series 7 fleet. During the subsequent U.S. conversions assuming a supportive trade environment, India front-end output is planned to be flexed to supply U.S. facilities, supporting U.S. back-end throughput and preserving partial domestic content and Section 45x eligibility production during the transition. Accordingly, India's finished goods production in 2027 is expected to range from 2.2 gigawatts to 2.6 gigawatts. The pace in sequencing subsequent Series 7 U.S. conversions will be informed by learnings from the India launch consistent with the disciplined learning-based approach we have taken across all periods of technology transition. In South Carolina, our Series 6 finishing facility is being brought online in two phases as part of the integrated manufacturing flow from Vietnam. The first phase started production in Q3. Second phase is expected to reach commercial launch in mid-2027. As we previously shared, we delayed the second phase by approximately one quarter so that Secure could be incorporated at commercial launch. Together, these two phases are expected to result in 2027 South Carolina production of 2.2 to 2.5 gigawatts. Beyond CuRe, we continue to advance our next-generation technology road map, our Ohio pilot line designed to produce Series 6 size perovskite modules remains on track to reach operational readiness in the first half of 2027. We expect this line will enable field deployment of modules to further capture learnings and validate the manufacturing performance and durability profile of this next-generation thin film technology before we undertake broader scaling decisions. Our licensing agreement with Cubic PV announced earlier today, together with our previously announced intellectual property agreement with Oxford PV, continues to support the development road map, providing access to foundational perovskite IP as we advance our technology road map. Turning to the market environment on Slide 5. The Section 232 reclamation issued in August represents a meaningful shift for U.S. solar manufacturing. And we believe First Solar is well positioned to benefit as the shift takes effect. Combined with fundamentals such as continued demand strength from load growth and data center expansions, we see a long-term opportunity to translate this position into earnings growth. Section 232 represents a structural change in how the United States approaches solar manufacturing. As the U.S. competes for global leadership in artificial intelligence, and the emerging low earth orbit economy, secure and affordable power will be foundational to both. The country cannot afford to depend on adversarial nations for technologies and supply chains increasingly central to our long-term economic prosperity and national security. As a technology company and the only fully integrated utility scale solar manufacturer without dependency on a Chinese crystal silicon supply chain, we believe we are structurally positioned to benefit from this environment. Note, by 2027, nearly 80% of our global module manufacturing footprint will be located in the U.S. Long-term demand fundamentals also remained strong. AI-related infrastructure, electrification and the onshoring of U.S. manufacturing are driving significant load growth. These customers need large-scale power quickly and solar plus storage remains one of the fastest and lowest cost solutions. They are increasingly focused on availability, delivery certainty, a bankable warranties and supply chain security attributes we have built our business around. As it relates to bookings, we believe the market is working through a transition following the Section 232 announcement with significant influence from other key factors. As a reminder, a substantial portion of our existing backlog is comprised of multiyear framework agreements that are intended to supply customers with projects in various stages of development. While entering into these types of agreements has historically driven significant additions to our backlog, they can also be more challenging for us to plan for and allocate against because of the inherent delivery timing uncertainty associated with projects in early stage of development. Over the course of this year, while not closing the door on framework agreements with appropriate contractual protections, our customer engagements have shifted more towards project-specific contracting with the 5 projects and delivery schedules. From our perspective, the enhanced certainty surrounding project-specific contracts allows us to optimize module allocation and delivery with a potential trade-off of slowing the pace of an extended multiyear contracted backlog. At the same time, customers are focused on advancing mid- and late-stage projects where modules have already been secured, while deferring procurement on early-stage projects requiring delivery later in the decade. We see several factors driving this behavior, including increased nimbyism among community residents and growing state and local government opposition. In addition, the overall inflationary environment, together with the continuously evolving tariff landscape, have challenged near-term project economics and require greater strategic planning on behalf of our development customers to address system cost increases unrelated to module pricing. As one example, in certain cases, surging battery prices is challenging both projects in construction as well as projects at the PPA bid stage. Lastly, an incomplete regulatory picture with regards to the final FIAT guidance as well as the potential for Section 232 tariffs to continue to evolve, particularly as it relates to minimum import prices and the effectiveness of anti-stocking measures has generated volatility in the module procurement market and inhibited customer clarity as it relates to module pricing discovery. The impact of these current dynamics on recent bookings is most pronounced from our Malaysia facility. While Vietnam is expected to supply the semi-finished product for our South Carolina finishing facility, Malaysia retains the capacity to produce fully finished international modules. We continue to evaluate demand for this product based on core unit economics, tariffs and trade conditions and customer contracting terms. We expect the operating decision regarding our Malaysia facility to be binary, resulting in either operations at full or near full capacity of 1.8 gigawatt annually or a shutdown of production with a decision expected in the first half of 2027. Given Malaysia's relatively small contribution to our manufacturing footprint, limited Series 6 blending opportunity in the U.S. absent a Section 45x credits and freight and tariff burdens, we do not expect either outcome to materially impact our run rate earnings profile. Against this backdrop, we remain deliberate on bookings, and we are pleased with the results of this approach. Through today in the U.S., our largest market, we have booked approximately 4.9 gigawatts at approximately $0.36 per watt inclusive of ingesters. Moreover, our 44 gigawatt backlog gives us the ability to focus on contracting approaches on two strategic initiatives. First, we seek to improve pricing on new module sales relative to our current backlog ASP, no pricing will continue to vary by product, Series 6 and Series 7 and by U.S. versus internationally made. Second, we seek to improve contract structures to further mitigate the risk of cost increases beyond our control, strengthening credit support and payment terms and firm up product delivery schedules. Our objective is to optimize across both upfront ASPs as well as long-term earnings profile through disciplined pricing, appropriate contractual protections, strong counterparties and alignment with our manufacturing and delivery strategy. In summary, our focus on project specific versus framework agreements, customer focus on near-term project execution versus late data procurement, evolving market price discovery and our contracting discipline have moderated recent bookings on a volume basis. But on an economic basis, has generated improved pricing relative to our overall backlog. In addition, we remain focused on our ability to affect our contracting strategic initiatives and are confident in demand for our domestically produced product, particularly for [ 2029 ] and beyond when we have -- available supply. With that, I turn the call over to Alex to discuss our bookings, financial results and outlook.

Thanks, Mark. Turning to our bookings and backlog on Slide 6. We ended the quarter with 44 gigawatts on to contract, representing approximately $13.5 billion contracted value, exclusive of technology adjusters with scheduled deliveries extending through 2030. Since our last earnings call, we recorded approximately 1.4 gigawatts of additional U.S. gross bookings at an average selling price of approximately $0.36 per watt, inclusive of applicable technology adjusters. Importantly, substantially all the volume was contracted or in late-stage negotiations and pricing in terms are largely set ahead of the Section 232 announced. In addition, there remains approximately 4 gigawatts of variable volume associated with previously signed contracts, not currently part of the contracted backlog, but pricing reflective of the pre-Section 232 environment, which our customers have the ability to exercise as of the date start. Approximately half of this volume has a decision day within the next 5 months, with the other half spread across the remainder of 2027 and 2028. Should our customers elect to receive this volume, it will be recognized as incremental bookings time of such election. During the quarter, we also continued customer notifications related to contractual technology adjusters, aligned with our production plan and intended deployment sequence. These notifications represent a meaningful source of incremental backlog value as CuRe deployment advances across the fleet, with the majority of the adjusted value expected to be realized in 2027 and 2028. In respect to adjust eligible volume, we would note that the ultimate realization of these adjustments is subject to the achievement of the underlying technology milestones, timing of future customer notifications and module delivery schedules and other contractual conditions. And therefore, the final value and timing may differ from the amounts and periods described. Of that potential adjusted value, approximately 20% is currently associated with 2027 deliveries with the remainder weighted to 2028 and beyond. As we continue to progress customer notifications associated with existing bookings tied to our CuRe deployment sequence, together with new bookings removing the adjusted concepts as we sell our CuRe product with the technology embedded in the base ASP the value of the adjusters will roll off over time. Turning to Slide 7. Net sales for the third quarter were approximately $1.2 billion, a decrease of approximately 23% year-over-year. The decrease was primarily driven by lower module volumes sold to third parties compared to the prior year period. Gross margin was approximately 58%, up roughly 20 percentage points year-over-year. The year-over-year increase was driven primarily by a higher mix of U.S. produced modules. Gross margin also benefited from lower sales rates and utilization costs, tariffs and duties, partially offset by lower termination related revenue. Operating expenses were approximately $167 million. Research and development expense was approximately $67 million, reflecting continued investment in our technology road map, including development. Net income was $571 million, up approximately 25% year-over-year. Adjusted EBITDA was $744 million, near the upper end of our previously communicated Q3 preview range, with an adjusted EBITDA margin of approximately 60%. Diluted earnings per share were $5.30 compared with $4.24 in the prior year period. Turning to our balance sheet and capital allocation on Slide 8. We ended the quarter with approximately $1.5 billion in net cash remaining within our long-term target net cash range of $1.5 billion to $2 billion. Our balance sheet and projected cash generation continues to provide substantial financial flexibility. In February, we laid out our approach to capital structure and capital allocation is prioritized maintaining the aforementioned $1.5 billion to $2 billion of net cash to provide resiliency to cyclicality and industry volatility. And to use additional cash to focus on growth technology deployment, innovation, R&D, technology road map advancements and M&A, especially related to complementary technology adjacent opportunities. We further stated that we would evaluate applying cash generation in excess of the above capital priorities to share repurchases, pending clarity around third factors, including policy catalysts, new bookings volume and tax credit monetization. In line with this approach and following the Section 232 proclamation issued in Q3, our Board has authorized a share repurchase program of up to $500 million, effective immediately with no expiration date. This authorization reflects confidence in the long-term value of the business, while preserving our disciplined approach to capital allocation and ability to continue investing in technology development and growth. Turning to Slide 9. Our full year 2026 guidance is updated to reflect a lower range of India domestic, international Series 6 and U.S. finishing volumes sold, with an associated reduction in revenue and adjusted EBITDA. As we stated in our original guidance in February, we entered the year assuming our India facility would flex production as needed to match successfully priced India-based demand in an inherently short book-to-bill cycle market. We've accordingly reduced our full year India domestic volume sold forecast by approximately 0.7 gigawatts. We also stated in February that we entered the year assuming limited in-year demand for our Series 6 international product and bookings activity for 2026 deliveries has remained consistent with that assumption. While the low end of our total U.S. component volume sold forecast reflects a modest reduction based on reduced Series 6 WIP share products sold, our forecast range for fully domestic products sold remains unchanged. As we look forward to next year, subject to a supportive policy and trade environment, we expect to increase exports from our India facility to the U.S. market to optimize the margin potential from this factory. And as Mark discussed, we expect to make a decision on the long-term operating path for our Malaysia facility in the first half 2027. Core operating expenses primarily increased as a function of increased legal spend associated with defending our Topcon intellectual property position, which we believe has the potential to drive future revenue and earnings upside and increased R&D spend on perovskite development. Note, our full year perovskite related spend originally forecasted approximately $100 million is now expected to total approximately $120 million. This forecast increased in 2027 as we seek to advance this next-generation advanced technology. Core OpEx increases were offset by a delay in certain start-up expenses of our South Carolina facility now expected in mid-2027, leaving our total 2026 operating expense guidance unchanged. Net cash guidance remains unchanged. The reduced cash inflows from volumes sold, offset by a reduction to forecasted CapEx. In summary, we remain well positioned as we close out 2026 and look forward to 2027, driven by U.S. policy framework supporting true domestic manufacturing, continued lower growth as the United States compete to lead in AI and utility scale solar ambition to meet the cost and speed to power requirements of a rapidly modernizing U.S. economy. The drivers align well with our 44 gigawatts contracted backlog for mostly near-term deliveries and greater module supply availability in the 2028 beyond time frame, which we expect further improvements in pricing and contractual terms relative to our existing backlog. We continue to invest in our future, including our stage CuRe technology replication across the fleet, and increased perovskite spend in R&D, IP partnerships and our Perrysburg pilot line. Our strong balance sheet allows us continued investment in the business while concurrently enabling capital return to shareholders. And with that operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of Moses Sutton with BNP Paribas.

Maybe you could like elaborate on what seems like literally 0 urgency for developers to book '29 volumes. I sort of get the point on there's nimbyism there's positive economics, there's tariffs, but we also hear from developers they expect to really do a lot of safe harbor volume in [ 2029 ] Panel prices will structurally go up 50%. They don't have inventory that extends that far out, even if they do for the next 2 years. So -- sorry for the long question, but would there be a strategy change that's necessary? Would you cut price to $0.34, $0.35 and book the rest of the decade? It would seem that a little more agency for '29 than there used to be, maybe can elaborate a little more, because we do still expect at least 10 gigawatts of TAM each year in '29 and '30?

Yes. Well, look, I think the first thing I think we just need to maybe step back and reflect on is that everyone obviously is evaluating the execution against their development pipeline. And there's near-term initiatives and areas of focus that they're concentrated on right now and disruptions at certain times, as we indicated even as it relates to whether it's battery costs or other component costs, I mean, or the impact of tariffs that are swinging various projects around, people are all trying to work through that. They're trying to secure their financing. There's still interconnection challenges that people are working through. And then probably the biggest issue that people are continuing to struggle with right now is just the challenges that are continuing to happen in local communities even at the state level, in particular, from a government standpoint and trying to push back on deployment of data centers, as we indicated and maybe as a comment that we had in our prepared remarks. So there's a lot that they got going on right now. So engagements that we are having right now with customers. And we are starting to book pipeline of opportunities that are going out into that horizon and some even beyond '29 going into '30 and beyond as well. But everyone is kind of like I got all these near-term things I'm focused on at this point in time. I've got to work through these, get everything addressed I'm still trying to digest the implications of what happens with the full implementation around 232. People are still trying to think through the Fiat guidance is going to come out sometime either later this year or beginning of next year. And so I think there's clarity that everybody is looking for at that point in time. So I think it's just a matter of just the timing of letting some of this work its way through and where their near-term priorities are to then think through the balance of the decade and what they still need to do. I mean everyone is really concerned now meeting their 48 safe harbor requirements, which these products have to be safe harbored by and completed and commissioned by the end of 2028. And there's not as much focus going further out into the horizon, and that's largely what we're seeing from customers.

Just a couple of other comments. So we said on the call that we were seeing this year challenges in near-term book-to-bill on our international volume. And if that ties into what we said before, we don't want to be in the spot market. That's a challenging place for us to be. But if you look at our contracted backlog, we're still booked out a couple of years in advance. So when you talk about urgency around booking 2029, obviously, we'd like to see bookings momentum. We're open for business, but I don't think we have a desperate urgency to be booking in that horizon right now. And we also talked on the call in the prepared remarks around how we're thinking about contracting. And we're looking increasingly at individual projects versus large frameworks. And we're happy to take framework deals with the right set of structural protections within them. But we see more and more customers actually looking at individual project deals, and we've been looking at that. And generally speaking, that's going to give you shorter-term visibility relative to 2029. So if it's trying to book specific projects, that the amount of clarity you have for 2029 is a lot less than if you're looking at framework horizon. So there's that piece to factor in as well.

Yes. And one thing I should have mentioned, too, just I think it's just a really good example to highlight kind of the dynamics that are going on, right? Now we are in negotiations with the customer for 2 gigawatt procurement decision that was largely into final negotiations and documentation associated around the agreement and the particular state that this project was being developed put a moratorium in place. And the whole project stopped, right? And this has happened after the announcement of the 232. So customers are just uncertain and when that level of uncertainty does happen, then they're not going to be making commitments until they get better clarity.

Your next question comes from the line of Joseph Osha with Guggenheim.

Following a little bit on Moses' question. Alex, you mentioned that bookings we're seeing now reflect conversations that were undertaken prior to 232. Can you maybe give us a little bit of a preview on where conversations are landing for conversations that commence post 232?

Yes, maybe I'll add a little bit color around that. Since the announcement of 232, we have revised and increased our pricing. In some cases, they were deals that were still in the early stage of negotiations. So we have increased pricing in those negotiations with customers. It -- and if it's a new opportunity that's come in our way that wasn't even in any form of conversation prior to the 232, then those prices have gone up relative to what we would have been indicating previously. We still have to work through all those issues, right? And I think we're -- anytime you get through here in an environment of rising prices, there's a lot of price discovery that's going to get done. Everyone want to go out and they want to evaluate all other options and sort of discover where they think the pricing can be for different dynamics and whether they need the domestic content or how much of the domestic content from a point standpoint do they need. So they're going to do a lot of heavy lifting to sort of figure out and triangulate what makes the most sense. Partly because they also have to, in most cases, go back and get approval through their boards. And when you see a price point in the market that was there previously and now that, that price point has increased significantly, then everybody has to then sort of do the due diligence around that. So what I would say is the deals that -- some of the deals that we have announced in this quarter were priced before the 232 in cases where we were in earlier negotiations with customers after the 232, we have looked to try to increase that and then clearly, any new opportunities that kind of informed the more comprehensive view of what we think the pricing environment is like today. But like I said, the price discovery is going to take a while before you'll start to see that volume being executed.

Your next question comes to the line of Philip Shen with ROTH Capital.

In terms of price, just to continue with the conversation, the price discovery may take some time. It sounds like you are -- you have 4 gigawatts, of which maybe 2 gigawatts needs to be decided on in the next 5 months. And so just curious where -- what are we talking about now in terms of where pricing could go to in the crystalline silicon world, we've quantified it as pricing has gone up $0.10 to $0.20 a lot depending on the product and maybe timing. And so that's a big move, and I understand the price discovery patients or timing that people need because they have to process kind of this upside shock to their economics. And so I was wondering if you can share with us a little bit of where do you think -- what could you book in the next quarter and then what kind of price do you think you might get?

Yes. Phil, the one thing on price, too, I just want to make sure that we've highlighted this before, it does vary by -- we have it in our prepared remarks as well. I mean the price for us -- for our Series 6 product is different than our Series 7 products. Our domestic -- high content domestic content product is different than a fully international imported module. So there's going to be a distribution of what that pricing could look like. And so if I'm selling something that's being imported from Malaysia as an example. That's going to be at the low end of that continuum. And if I'm selling our Series 7 product that's domestically manufactured here in the U.S., and that's going to be at the high end. So there's going to be a continuum around pricing. As it relates to -- we just announced, again, I think, another quarter at $0.36 or something like that is what our -- since the last call, Con call, I think it was around $0.36. And we have deals and that's an average. We've got deals that are above that, and that's a momentum that we'd like to continue to carry on -- carry forward. But I also want to be careful of we've got to premarker out there with so much that still is as fluid and still evolving. I don't want to give an indication of what that price realization could be. We're just going to work to try to see how we can engage the market and capture the highest value relative to competitive alternatives. And Chris and silicon stays in the range that you referenced and then that gives us quite a bit of opportunity to improve pricing dynamics for our technology. But a lot of work still to go to get there.

So maybe just two other comments. As it relates to the volume that we already have that may get elected by customers, that's going to range from somewhere close to current backlog average or somewhere close to where we're pricing now. So you're going to see a variety in that. But it's going to be between what we see historically and what we're seeing currently. And then as you think about future pricing, Christmas silicon pricing is still most likely for deals in the next 12 to 24 months. And I don't think there's a good market for that price point when you get out into the late '28, 2029, 2030 time frame, which is when we have most available product to sell. So one of the reasons I think customers are still doing price discovery is they don't necessarily have a good benchmark that far out, that's reliable or trustworthy. And so we're still working through our pricing relative to where we think the market is and customers trying to understand our pricing relative to where they think that market point will be.

Yes. And I think the other point maybe I'll highlight as well, Phil, is that, look, we still have a little bit of time before we get to full implementation on the 232. And what I will say is, I'm very happy to hear the kind of enforcement focus that the commerce has to address stockpiling. The problem is there's such an aggressive posture and risk-taking that people are willing to do in order to get a module into the U.S. at some pre-32 MIP. And so we're in a lot of stories of to what extent people are going to in order to try to get product into the market, whether it's a set the cell level or whether it's at the module level and just aggressively pushing the envelope. And I know Commerce is doing a great job of trying to enforce that and to prevent that from happening and stopping that. But the onsite of this stuff is coming from every angle. . And so I think there's also that piece that people are waiting for. Let's let -- maybe there'll be a lot more product that does make it into the market somehow. And a customer may say, I'm willing to take some we buy some time because maybe I can get an opportunity to get some pre-32 volume that's been imported into the market at some increasingly low price. And that's informing their decision or at least create a willingness to wait, and we obviously are there to encourage commerce to do whatever they can to ensure that enforcement of preventing that stock filing. But that's not stopping the activities. People are willing to take a lot of risk, and it's very aggressive, and we'll have to see how effective commerce could be. So far, we applaud them for their efforts, there's no doubt about that.

Yes. So far, they blocked , I think we've learned about 60 importers blocked that up until about 2 weeks ago, and that's out of an importer count of, I think, 400 -- pre-232, we learned that 200. And then post-232, that jumped up to 400. They've locked at least close to 60. So it looks like they're working -- the enforcement is pretty aggressive. Any thoughts on that? And then how much higher MIPs could go up and what kind of timing that could be?

Yes. I think on the enforcement, I mean, I -- some of you may know that we did our ribbon-cutting for our new factory in South Carolina and secondary Nick was there and a number of the key members of his team were there. So it gives us a great opportunity to talk with them and to sort of continue to emphasize the importance of this enforcement, and they're 100% committed on the enforcement side and to do everything they can to prevent those types of things from happening. And where we can, we are sharing insights with them and things we think could be helpful from that standpoint. And just to your point, I mean, the risk tolerance and that people are willing to take knowing that there's going to be that level of enforcement is not slowing some things down very much. I mean, yes, you can get 60 out of the -- if the number of importers of record went up from 200 to 400. And it's great that we caught 60 of them, but there remains another 140 that potentially are still getting around the current enforcement levels, right? So -- and then as it relates to the MIP, look, I think is very clear if you haven't seen -- remarks at our ribbon cutting, I think you just ought to watch it. There's a couple of videos that are out there, and he's 100% clear the strategic intent of what we're trying to do here, which is to create U.S. manufacturing, U.S. jobs, U.S. supply chain, U.S. technology and things that can help enable energy independence and national security. And so they're going to enforce this and they're going to put the right requirements in place of ensuring the domestic manufacturing can thrive and then put as many incentives as possible to encourage people to manufacture more here in the U.S., which I think is great.