Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the Securities Act of 1933, as amended (the “Securities Act”), which are subject to risks, uncertainties, and assumptions that are difficult to predict. All statements in this Quarterly Report on Form 10-Q, other than statements of historical fact, are forward-looking statements. These forward-looking statements are made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The forward-looking statements include statements, among other things, concerning: effects resulting from certain module manufacturing changes; our business strategy, including anticipated trends and developments in and management plans for our business and the markets in which we operate; future financial results, operating results, module volumes produced, module volumes sold, revenues, gross margin, operating expenses, products, projected costs (including estimated future module collection and recycling costs), warranties, solar module technology and cost reduction roadmaps, restructuring, product reliability, investments, and capital expenditures; our ability to successfully integrate an acquired business; our ability to continue to reduce the cost per watt of our solar modules; the impact of public policies; the potential impact of legislation intended to encourage renewable energy investments through tax credits; our ability to expand manufacturing capacity worldwide, including our plans to construct new manufacturing facilities in the United States and related increases in manufacturing capacity; the impact of supply chain disruptions, which may affect the procurement of raw materials used in our manufacturing process and the distribution of our modules; R&D programs and our ability to improve the wattage of our solar modules; sales and marketing initiatives; and competition. In some cases, you can identify these statements by forward-looking words, such as “estimate,” “expect,” “anticipate,” “project,” “plan,” “intend,” “seek,” “believe,” “forecast,” “foresee,” “likely,” “may,” “should,” “goal,” “target,” “might,” “will,” “could,” “predict,” “continue,” “contingent,” and the negative or plural of these words, and other comparable terminology.

Forward-looking statements are only predictions based on our current expectations and our projections about future events. All forward-looking statements included in this Quarterly Report on Form 10-Q are based upon information available to us as of the filing date of this Quarterly Report on Form 10-Q and therefore speak only as of the filing date. You should not place undue reliance on these forward-looking statements. We undertake no obligation to update any of these forward-looking statements for any reason, whether as a result of new information, future developments, or otherwise. These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to differ materially from those expressed or implied by these statements. These factors include, but are not limited to:

• structural imbalances in global supply and demand for PV solar modules;

• our competitive position and other key competitive factors;

• the reduction, elimination, or expiration of government subsidies, policies, and support programs for solar energy projects and other renewable energy projects;

• the impact of public policies, such as tariffs or other trade remedies imposed on solar cells and modules;

• the passage of legislation intended to encourage renewable energy investments through tax credits, such as the IRA;

• our ability to execute on our long-term strategic plans, including our ability to secure financing and realize the potential benefits of strategic acquisitions and investments;

• our ability to execute on our solar module technology and cost reduction roadmaps;

• our ability to incorporate technology improvements into our manufacturing process, including the implementation of our copper replacement program;

• our ability to avoid manufacturing interruptions, including during the ramp of our Series 7 modules manufacturing facilities;

• our ability to improve the wattage of our solar modules;

• interest rate fluctuations and our customers’ ability to secure financing;

• the loss of any of our large customers, or the ability of our customers and counterparties to perform under their contracts with us;

• the severity and duration of public health threats, including the potential impact on the Company’s business, financial condition, and results of operations;

• our ability to attract new customers and to develop and maintain existing customer and supplier relationships;

• our ability to construct new production facilities to support new product lines;

• general economic and business conditions, including those influenced by U.S., international, and geopolitical events;

• environmental responsibility, including with respect to CdTe and other semiconductor materials;

• evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social, and governance matters;

• claims under our limited warranty obligations;

• changes in, or the failure to comply with, government regulations and environmental, health, and safety requirements;

• effects arising from and results of pending litigation;

• future collection and recycling costs for solar modules covered by our module collection and recycling program;

• supply chain disruptions, including demurrage and detention charges;

• our ability to protect our intellectual property;

• our ability to prevent and/or minimize the impact of cybersecurity incidents or information security breaches;

• our continued investment in R&D;

• the supply and price of components and raw materials, including CdTe;

• our ability to attract, train, retain and successfully integrate key talent into our team; and

• all other matters discussed in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023, elsewhere in this Quarterly Report on Form 10-Q, and our other reports filed with the SEC.

You should carefully consider the risks and uncertainties described in this section. The following discussion and analysis of our business, financial condition, and results of operations should be read in conjunction with our condensed consolidated financial statements and the related notes thereto included in this Quarterly Report on Form 10-Q.

Executive Overview

We are a leading American solar technology company and global provider of PV solar energy solutions. Developed at our R&D labs in California and Ohio, we manufacture and sell PV solar modules with an advanced thin film semiconductor technology that provide a high-performance, lower-carbon alternative to conventional crystalline silicon PV solar modules. From raw material sourcing through end-of-life module recycling, we are committed to reducing the environmental impacts and enhancing the social and economic benefits of our products across their life cycle. We are the world’s largest thin film PV solar module manufacturer and the largest PV solar module manufacturer in the Western Hemisphere.

Certain of our financial results and other key operational developments for the three months ended March 31, 2024 include the following:

• Net sales for the three months ended March 31, 2024 increased by 45% to $794.1 million compared to $548.3 million for the same period in 2023. The increase was primarily driven by an increase in the volume of modules sold to third parties and an increase in the average selling price per watt of our modules.

*•*Gross profit as a percentage of net sales for the three months ended March 31, 2024 increased 23.2 percentage points to 43.6% from 20.4% for the same period in 2023. The increase in gross profit was primarily due to the recognition of the advanced manufacturing production credit under Section 45X of the IRC, reductions in sales freight costs, and a higher average selling price per watt for modules sold in the current period.

• As of March 31, 2024, our total installed nameplate production capacity across all our facilities was approximately 17.6 GW. During the three months ended March 31, 2024, we produced 3.6 GW and sold 2.7 GW of solar modules. During 2024, we expect to produce between 15.6 GW and 16.0 GW and sell between 15.6 GW and 16.3 GW of solar modules.

• In December 2023, we entered into an agreement with Fiserv for the sale of $687.2 million of Section 45X tax credits we generated during 2023 for aggregate cash proceeds of $659.7 million. We received initial cash proceeds of $480.0 million during the three months ended March 31, 2024 and received the remaining cash proceeds of $179.7 million in April 2024.

Market Overview

Solar energy is one of the fastest growing forms of renewable energy with numerous economic and environmental benefits that make it an attractive complement to and/or substitute for traditional forms of energy generation. Over the past decade, the cost of producing electricity from PV solar power systems has decreased to levels that are competitive with or below the wholesale price of electricity in many markets. This price decline has opened new possibilities to develop systems in many locations with limited or no financial incentives, thereby promoting the widespread adoption of solar energy. Other technological developments in the industry, such as the advancement of energy storage capabilities, have further enhanced the prospects of solar energy as an alternative to traditional forms of energy generation. In addition to these economic benefits, solar energy has substantial environmental benefits. For example, PV solar power systems generate no greenhouse gas or other emissions and use minimal amounts of water compared to traditional energy generation assets. As a result of these and other factors, worldwide solar markets continue to develop and expand.

Recently enacted government support programs, such as the IRA, have contributed and are expected to continue to contribute to this momentum by providing solar module manufacturers, project developers, and project owners with certain subsidies and tax incentives to accelerate the ongoing transition to clean energy. Among other things, the IRA (i) reinstates the 30% investment tax credit for qualifying solar projects that meet certain wage and apprenticeship requirements, (ii) extends the production tax credit to include energy generated from solar projects, (iii) provides incremental investment and production tax credits for solar projects that meet certain domestic content and location requirements, and (iv) offers tax credits for solar modules and solar module components manufactured in the United States and sold to third parties.

Supply and demand. As a result of the market opportunities and increased demand described above, we are in the process of expanding our manufacturing capacity by approximately 7.6 GW, including the construction of our fourth and fifth manufacturing facilities in the United States, which are expected to commence operations in the second half of 2024 and late 2025, respectively; and the expansion of our manufacturing footprint at our existing facilities in Ohio, which is expected to be completed in the first half of 2024. We continue to evaluate opportunities for future expansion worldwide. In the aggregate, we believe manufacturers of solar cells and modules, particularly those in China, have significant installed production capacity, relative to global demand, and the ability for additional capacity expansion. Accordingly, we believe the solar industry may experience periods of structural imbalance between supply and demand, which could lead to periods of pricing volatility. In light of such market realities, we continue to focus on our strategies and points of differentiation, which include our advanced module technology, our manufacturing process and distributed manufacturing presence, our R&D capabilities, the sustainability advantage of our modules, and our financial stability.

Pricing competition. The solar industry has been characterized by intense pricing competition, both at the module and system levels. This competition may result in an environment in which pricing falls rapidly, which could potentially increase demand for solar energy solutions but constrain the ability for project developers and module manufacturers to sustain meaningful and consistent profitability. Our results of operations could be adversely affected if competitors reduce pricing below their costs, bid aggressively low prices for module sale agreements, or are able to operate at minimal or negative operating margins for sustained periods of time. For certain of our competitors, including many in China, these practices may be enabled by their direct or indirect access to sovereign capital or other forms of state support. Although module average selling prices in many global markets have declined, near-term module pricing in the United States, our primary market, remains relatively stable due, in part, to the rising demand for domestically manufactured modules as a result of the IRA.

Diverse offerings. We face intense competition from manufacturers of crystalline silicon solar modules and other emerging technologies. Solar module manufacturers compete with one another on sales price per watt, which may be influenced by several module value attributes, including energy yield, wattage (through a larger form factor or an improved conversion efficiency), degradation, sustainability, and reliability. Sales price per watt may also be influenced by warranty terms, customer payment terms, and/or module content attributes. We believe that utility-scale solar will continue to be a compelling offering and will continue to represent an increasing portion of the overall electricity generation mix. However, this focus on utility-scale module offerings exists within a current market environment that includes rooftop and distributed generation solar, which may influence our future offerings.

We continue to devote significant resources to support the implementation of our technology roadmap and improve the energy output of our modules. In the course of our R&D activities, we explore various technologies in our efforts to sustain competitive differentiation of our modules. Such technologies include the development of bifacial modules, the implementation of our CuRe program, and ongoing research and development of multi-junction solar modules.

• Bifacial. While conventional solar modules are monofacial, meaning their ability to produce energy is a function of direct and diffuse irradiance on their front side, most module manufacturers offer bifacial modules that also capture diffuse irradiance on the back side of a module. Bifaciality compromises nameplate efficiency, but by converting both front and rear side irradiance, such technology may improve the overall energy production of a module relative to nameplate efficiency when applied in certain applications, which could potentially lower the overall levelized cost of electricity (“LCOE”) of a system when compared to systems using monofacial solar modules. We recently began commercial production of bifacial solar modules at certain of our manufacturing facilities in Ohio. Our bifacial module features an innovative transparent back contact which, in addition to converting both front and rear side irradiance, allows infrared light to pass through rather than be absorbed as heat. This design lowers the operational temperature of the module, resulting in a higher energy yield.

• CuRe. Our CuRe program is intended to improve our current semiconductor structure by replacing copper with certain other elements that are expected to enhance module performance by improving its bifaciality characteristics, improving its temperature coefficient, and improving its warranted degradation. As a result of these performance improvements, our PV solar modules are expected to produce more energy in real world operating conditions over their estimated useful lives than crystalline silicon modules with the same nameplate capacity. In September 2023 and January 2024, we established new world record CdTe research cell conversion efficiencies of 22.4% and 22.6%, respectively, which were based on our CuRe program and certified by the U.S. Department of Energy’s National Renewable Energy Laboratory. We currently expect to complete our lead line implementation of CuRe in the fourth quarter of 2024.

• Multi-junction. We continue to evaluate opportunities to develop and leverage other solar cell technologies in multi-junction applications that combine our thin film PV technology with another high efficiency PV semiconductor, with each layer optimized for a different range of the solar spectrum. We believe such applications, which are expected to utilize at least one thin-film semiconductor, have the potential to significantly increase the efficiency of PV modules beyond the limits of traditional single-junction devices. Our acquisition of Evolar accelerates the development of high efficiency multi-junction devices by integrating Evolar’s know-how with First Solar’s existing R&D capabilities.

Product efficiencies. The efficiencies gained from the vertical integration of our manufacturing model and our continued ability to reduce costs allow us to compete favorably in markets where pricing for modules and systems is highly competitive. Our cost competitiveness is based in large part on our advanced thin film semiconductor technology, module wattage (or conversion efficiency), proprietary manufacturing process (which enables us to produce a CdTe module in a matter of hours using a continuous and highly automated industrial manufacturing process, as opposed to a batch process), and our focus on operational excellence. In addition, our CdTe modules use approximately 2% to 3% of the amount of semiconductor material that is used to manufacture conventional crystalline silicon solar modules. The cost of polysilicon is a significant driver of the manufacturing cost of crystalline silicon solar modules, and the timing and rate of change in the cost of silicon feedstock and polysilicon could lead to changes in solar module pricing levels. In recent years, polysilicon consumption per cell has been reduced through various initiatives, which have contributed to declines in our relative manufacturing cost competitiveness over conventional crystalline silicon module manufacturers.

Energy performance. In many climates our solar modules provide certain energy production advantages relative to competing crystalline silicon solar modules. For example, our CdTe solar technology provides:

• a superior temperature coefficient, which results in stronger system performance in typical high insolation climates as the majority of a system’s generation, on average, occurs when module temperatures are well above 25°C (standard test conditions);

• a superior spectral response in humid environments where atmospheric moisture alters the solar spectrum relative to standard test conditions;

• a better partial shading response than competing crystalline silicon technologies, which may experience significantly lower energy generation than CdTe solar technologies when partial shading occurs; and

• an immunity to cell cracking and its resulting power output loss, a common failure often observed in crystalline silicon modules caused by poor manufacturing, handling, weather, or other conditions.

In addition to these technological advantages, we warrant that our solar modules will produce at least 98% of their labeled power output rating during the first year, with the warranty coverage reducing by a degradation factor between 0.3% and 0.5%, depending on the module series, every year thereafter throughout the limited power output warranty period of up to 30 years. As a result of these and other factors, our solar modules can produce more annual energy in real world operating conditions than conventional crystalline silicon modules with the same nameplate capacity.

While our modules are generally competitive in cost, reliability, and performance attributes, there can be no guarantee such competitiveness will continue to exist in the future to the same extent or at all. Any declines in the competitiveness of our products could result in further declines in the average selling prices of our modules and additional margin compression. We continue to focus on enhancing the competitiveness of our solar modules through our module technology and cost reduction roadmaps.

Certain Trends and Uncertainties

We believe that our business, financial condition, and results of operations may be favorably or unfavorably impacted by the following trends and uncertainties. See Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 for discussions of other risks (the “Risk Factors”) that may affect us.

Our business is evolving worldwide and is shaped by the varying ways in which our offerings can be compelling and economically viable solutions to energy needs in various markets. In addressing electricity demands, we are focused on providing utility-scale module offerings in key geographic markets that we believe have a significant need for mass-scale PV solar electricity, including markets throughout the United States, India, and Europe. We closely evaluate and monitor the appropriate level of resources required to support such markets and their associated sales opportunities. When deployed in utility-scale applications, our modules provide energy at a lower LCOE compared to traditional forms of energy generation, making them an attractive alternative to or replacement for aging fossil fuel-based generation resources. Accordingly, future retirements of aging energy generation resources represent a significant increase in the potential market for solar energy.

Demand for our PV solar module offerings depends, in part, on market factors outside our control. For example, many governments have proposed or enacted policies or support programs intended to encourage renewable energy investments to achieve decarbonization objectives and/or establish greater energy independence. While we compete in markets that do not require solar-specific government subsidies or support programs, our net sales and profits remain subject to variability based on the availability and size of government subsidies and economic incentives. Adverse changes in these factors could increase the cost of utility-scale systems, which could reduce demand for our solar modules. Recent developments to government support programs include the following:

• United States. In August 2022, the U.S. President signed the IRA into law, which is intended to accelerate the country’s ongoing transition to clean energy. Among other things, the financial incentives provided by the IRA have significantly increased demand for modules manufactured in the United States. Accordingly, the demand for these solar modules is expected to increase domestic manufacturing in the near term, which may result in localized supply chain constraints and periods of inflationary pricing for certain of our key raw materials. The financial incentives provided by the IRA have also increased demand for solar modules in general due to the incremental tax credit available for the qualified production of clean hydrogen that is powered by renewable resources. There are currently several critical and complex aspects of the IRA pending further technical guidance and final regulations from the IRS and the U.S. Treasury Department, which in 2023 released a notice of intent to issue proposed regulations for the domestic content bonus tax credit and notices of proposed rulemaking and temporary regulations for the direct payment election and the tax credit transfer election. This initial guidance is subject to revision prior to the publishing of final regulations by the IRS and U.S. Treasury Department. Given the complexities of the IRA, we continue to evaluate the extent of benefits available to us, which we expect will favorably impact our results of operations in future periods. For example, we currently expect to qualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and solar module components manufactured in the United States and sold to third parties. See Note 5. “Government Grants” to our condensed consolidated financial statements for discussion of our expectation of the financial benefits available to us under the IRA.

• India. In March 2023, the government of India allocated financial incentives under the Production Linked Incentive (“PLI”) scheme to certain PV module manufacturers, including First Solar. The PLI scheme is expected to provide aggregate funding of INR 185 billion ($2.3 billion), of which INR 11.8 billion ($143 million) was allocated to First Solar, to promote the manufacturing of high efficiency solar modules in India and to reduce India’s dependency on foreign imports of solar modules. Under the PLI scheme, manufacturers were selected through a competitive bid process and may be entitled to receive certain cash incentives over a five-year period following the commissioning of their manufacturing facilities. Among other things, such incentives are subject to attaining certain minimum thresholds for module efficiency and temperature coefficient and require that a certain proportion of raw materials be sourced from the domestic market. Such conditions will be evaluated on a quarterly basis from 2026 through 2031. At this time, it is uncertain to what extent we may qualify for such incentives.

Demand for our solar energy solutions also depends on domestic or international trade policies and government regulations, which may be proposed, revised, and/or enacted across short- and long-term time horizons with varying degrees of impact to our net sales, profit, and manufacturing operations. Changes in these policies and regulations could adversely impact the competitive landscape of solar markets, which could reduce demand for our solar modules. Recent revisions or proposed changes to trade policy and government regulations include the following:

• United States. The United States currently imposes antidumping and countervailing duties (“AD/CVD”) on certain imported crystalline silicon PV cells and modules from China and Taiwan. Such AD/CVD can change over time pursuant to annual reviews conducted by the U.S. Department of Commerce (“USDOC”), and a decline in duty rates or the USDOC’s failure to fully enforce U.S. AD/CVD laws could have an adverse impact on our operating results. In August 2023, the USDOC issued final affirmative circumvention rulings, finding that solar panels completed in Cambodia, Malaysia, Thailand, and Vietnam using parts and components produced in China circumvent the pre-existing AD/CVD orders on China. Such duties are set to apply to circumventing imports on or after June 6, 2024, as well as any circumventing imports prior to that date in violation of certain requirements, including that they are imported, used, and installed by certain dates in 2024. Our operating results could be adversely impacted if the USDOC and other U.S. government agencies do not enforce the affirmative circumvention rulings as expected or if pending litigation challenges result in a modification of the rulings. Conversely, effective enforcement could positively impact our operating results.

• United States. In October 2023, a coalition of U.S. aluminum extruders and a labor union filed AD/CVD petitions with the USDOC related to aluminum extrusions from 15 countries. The USDOC has initiated investigations based on the petitions. First Solar imports certain items that appear to be within the scope of the investigations. Our operating results could be adversely impacted if the USDOC imposes duties on such imports. A preliminary determination related to the petitions is expected to be announced by the USDOC in early May 2024.

• United States. In April 2024, the American Alliance for Solar Manufacturing Trade Committee, which includes First Solar, filed a set of AD/CVD petitions with the U.S. International Trade Commission and the USDOC to impose duties on unfairly traded solar products from four countries in Southeast Asia. The investigations could potentially lead to the imposition of AD/CVD orders on such solar products.

• India. The Approved List of Module Manufacturers (“ALMM”) was introduced in 2021 as a non-tariff barrier to incentivize domestic manufacturing of PV modules by approving the list of models and manufacturers who can participate in certain solar development projects. The ALMM is approved by the Ministry of New and Renewable Energy, and any modifications to the ALMM and its application may affect future investments in solar module manufacturing in India. In April 2024, the government of India reimposed the ALMM, thereby requiring solar project developers to procure modules from companies included in the ALMM; as of April 2024, First Solar has been included in the ALMM with respect to our modules manufactured in India. Our operating results could be adversely impacted if the ALMM requirements are significantly relaxed to allow modules to be imported from countries that are part of the Association of Southeast Asian Nations. Also in April 2024, the ALMM was amended to include specific minimum module efficiency thresholds for CdTe solar technologies starting at 18% for solar lighting, 18.5% for rooftop applications, and 19% for utility-scale applications.

Our ability to provide solar modules on economically attractive terms is also affected by the availability and cost of logistics services associated with the procurement of raw materials or equipment used in our manufacturing process and the shipping, handling, storage, and distribution of our modules. To mitigate certain logistics costs, we employ module contract structures that provide additional consideration to us if the cost of logistics services, excluding demurrage and detention, exceeds defined thresholds. We may also adjust our shipping plans to include additional lead times for module deliveries and/or utilize our network of U.S. distribution centers. Additionally, our manufacturing capacity expansions in the U.S. and India are expected to bring manufacturing activities closer to customer demand, further mitigating our exposure to the cost of ocean freight.

We generally price and sell our solar modules on a per watt basis. As of March 31, 2024, we had entered into contracts with customers for the future sale of 78.3 GW of solar modules for an aggregate transaction price of $23.4 billion, which we expect to recognize as revenue through 2030 as we transfer control of the modules to the customers. Such volume includes contracts for the sale of 40.2 GW of solar modules that include transaction price adjustments associated with future module technology improvements, including enhancements to certain energy related attributes. Based on these potential technology improvements, the contracted module volumes as of March 31, 2024, the expected timing such technology improvements are incorporated into our manufacturing process, and the expected timing of module deliveries, such adjustments, if realized, could result in additional revenue of up to $0.5 billion, the majority of which would be recognized in 2025, 2026, and 2027. In addition to these price adjustments, certain of our contracts with customers may include favorable price adjustments associated with sales freight in excess of defined thresholds. Certain of our contracts with customers may also include favorable or unfavorable price adjustments associated with changes to certain commodity prices and/or the module wattage committed for delivery. As a result, the revenue recognized from such contracts may increase or decrease in future periods relative to the original transaction price.

We continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and reducing manufacturing yield losses. Additionally, we are in the process of expanding our manufacturing capacity by approximately 7.6 GW, including the construction of our fourth and fifth manufacturing facilities in the United States, which are expected to commence operations in the second half of 2024 and late 2025, respectively; and the expansion of our manufacturing footprint at our existing facilities in Ohio, which is expected to be completed in the first half of 2024. This additional capacity, and any other potential investments to add to or otherwise modify our existing manufacturing capacity in response to market demand and competition, may require significant internal and possibly external sources of capital, and may be subject to certain risks and uncertainties described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.

Results of Operations

The following table sets forth our condensed consolidated statements of operations as a percentage of net sales for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
						2024						2023
Net sales						100.0		%				100.0		%
Cost of sales						56.4		%				79.6		%
Gross profit						43.6		%				20.4		%
Selling, general and administrative						5.8		%				8.0		%
Research and development						5.4		%				5.6		%
Production start-up						1.9		%				3.6		%
Gain on sales of businesses, net						0.1		%				—		%
Operating income						30.6		%				3.3		%
Foreign currency loss, net						(0.4)		%				(1.1)		%
Interest income						3.4		%				4.7		%
Interest expense, net						(1.2)		%				(0.1)		%
Other expense, net						(0.4)		%				(0.3)		%
Income tax (expense) benefit						(2.4)		%				1.3		%
Net income						29.8		%				7.8		%

Segment Overview

Our primary segment is our modules business, which involves the design, manufacture, and sale of CdTe solar modules, which convert sunlight into electricity. Third-party customers of our modules segment include system developers, independent power producers, utilities, commercial and industrial companies, and other system owners and operators. Our residual business operations include certain project development activities, O&M services, the results of operations from PV solar power systems we owned and operated in certain international regions, and the sale of such systems to third-party customers.

Net sales

We generally price and sell our solar modules on a per watt basis. During the three months ended March 31, 2024, we sold the majority of our solar modules to developers and operators of systems in the United States, and substantially all of our modules business net sales were denominated in U.S. dollars. We recognize revenue for module sales at a point in time following the transfer of control of the modules to the customer, which typically occurs upon shipment or delivery depending on the terms of the underlying contracts. Net sales from our residual business operations primarily consists of revenue recognized for sales of development projects or completed systems, including any modules installed in such systems and any revenue from energy generated by such systems.

The following table shows net sales by reportable segment for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Modules						$	793,434					$	536,590					$	256,844					48		%
Other						674						11,696						(11,022)						(94)		%
Net sales						$	794,108					$	548,286					$	245,822					45		%

Net sales from our modules segment increased $256.8 million for the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to a 39% increase in the volume of modules sold to third parties and an 6% increase in the average selling price per watt. Net sales from our residual business operations during the three months ended March 31, 2024 decreased $11.0 million compared to the three months ended March 31, 2023 as operations from our residual business operations continue to wind down.

Cost of sales

Our modules business cost of sales includes the cost of raw materials and components for manufacturing solar modules, such as glass, transparent conductive coatings, CdTe and other thin film semiconductors, laminate materials, connector assemblies, edge seal materials, and frames. In addition, our cost of sales includes direct labor for the manufacturing of solar modules and manufacturing overhead, such as engineering, equipment maintenance, quality and production control, and information technology. Our cost of sales also includes depreciation of manufacturing plant and equipment, facility-related expenses, environmental health and safety costs, and costs associated with shipping, warranties, and solar module collection and recycling (excluding accretion). Cost of sales for our residual business operations includes project-related costs, such as development costs (legal, consulting, transmission upgrade, interconnection, permitting, and other similar costs), EPC costs (consisting primarily of solar modules, inverters, electrical and mounting hardware, project management and engineering, and construction labor), and site-specific costs.

The following table shows cost of sales by reportable segment for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Modules						$	447,266					$	429,696					$	17,570					4		%
Other						839						6,539						(5,700)						(87)		%
Cost of sales						$	448,105					$	436,235					$	11,870					3		%
% of net sales						56.4		%				79.6		%

Cost of sales increased $11.9 million, or 3%, and decreased 23.2 percentage points as a percent of net sales for the three months ended March 31, 2024 compared to the three months ended March 31, 2023. The increase in cost of sales was driven by a $17.6 million increase in our modules segment cost of sales primarily due to (i) higher costs of $147.9 million due to an increase in the volume of modules sold, partially offset by (ii) the recognition of the advanced manufacturing production credit under Section 45X of the IRC, which decreased cost of sales by $124.3 million, and (iii) lower sales freight of $28.4 million. The increase in cost of sales was partially offset by a $5.7 million decrease in our residual business operations cost of sales as operations from our residual business operations continue to wind down.

Gross profit

Gross profit may be affected by numerous factors, including the selling prices of our modules and the selling prices of projects and services included in our residual business operations, our manufacturing costs, the capacity utilization of our manufacturing facilities, and foreign exchange rates. Gross profit may also be affected by the mix of net sales from our modules business and residual business operations.

The following table shows gross profit for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Gross profit						$	346,003					$	112,051					$	233,952					209		%
% of net sales						43.6		%				20.4		%

Gross profit as a percentage of net sales increased 23.2 percentage points to 43.6% during the three months ended March 31, 2024 from 20.4% during the three months ended March 31, 2023 primarily due to (i) the advanced manufacturing production credit described above, (ii) reductions in sales freight costs, and (iii) a higher average selling price per watt for modules sold in the current period.

Selling, general and administrative

Selling, general and administrative expense consists primarily of salaries and other personnel-related costs, professional fees, insurance costs, and other business development and selling expenses.

The following table shows selling, general and administrative expense for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Selling, general and administrative						$	45,827					$	44,028					$	1,799					4		%
% of net sales						5.8		%				8.0		%

Selling, general and administrative expense for the three months ended March 31, 2024 increased compared to the three months ended March 31, 2023, primarily due to higher costs associated with our implementation of a new global enterprise resource planning system.

Research and development

Research and development expense consists primarily of salaries and other personnel-related costs; the cost of products, materials, and outside services used in our R&D activities; and depreciation and amortization expense associated with R&D specific facilities and equipment. We maintain a number of programs and activities to improve our technology and processes in order to enhance the performance and reduce the costs of our solar modules.

The following table shows research and development expense for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Research and development						$	42,742					$	30,510					$	12,232					40		%
% of net sales						5.4		%				5.6		%

Research and development expense for the three months ended March 31, 2024 increased compared to the three months ended March 31, 2023 primarily due to higher material, module, and other testing costs and higher employee compensation expense resulting from an increase in headcount.

Production start-up

Production start-up expense consists of costs associated with operating a production line before it is qualified for commercial production, including the cost of raw materials for solar modules run through the production line during the qualification phase, employee compensation for individuals supporting production start-up activities, and applicable facility related costs. Production start-up expense also includes costs related to the selection of a new site and implementation costs for manufacturing process improvements to the extent we cannot capitalize these expenditures.

The following table shows production start-up expense for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Production start-up						$	15,408					$	19,494					$	(4,086)					(21)		%
% of net sales						1.9		%				3.6		%

During the three months ended March 31, 2024, we incurred production start-up expense primarily for our fourth manufacturing facility in the U.S., which is expected to commence operations in the second half of 2024. During the three months ended March 31, 2023, we incurred production start-up expense primarily for our first manufacturing facility in India and our third manufacturing facility in the U.S., both of which commenced operations during 2023.

Foreign currency loss, net

Foreign currency loss, net consists of the net effect of gains and losses resulting from holding assets and liabilities and conducting transactions denominated in currencies other than our subsidiaries’ functional currencies.

The following table shows foreign currency loss, net for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Foreign currency loss, net						$	(2,858)					$	(5,947)					$	3,089					(52)		%

Foreign currency loss, net for the three months ended March 31, 2024 decreased compared to the three months ended March 31, 2023 primarily due to a benefit from differences between our economic hedge positions and the underlying currency exposures, partially offset by higher costs associated with hedging activities related to our subsidiaries in India.

Interest income

Interest income is earned on our cash, cash equivalents, marketable securities, restricted cash, restricted cash equivalents, and restricted marketable securities. Interest income also includes interest earned from late customer payments.

The following table shows interest income for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Interest income						$	27,245					$	25,822					$	1,423					6		%

Interest income for the three months ended March 31, 2024 increased compared to the three months ended March 31, 2023 primarily due to higher yields and balances of marketable securities, partially offset by lower holdings of cash and time deposits.

Interest expense, net

Interest expense, net is primarily comprised of interest incurred on debt. We may capitalize interest expense to our property, plant and equipment when such costs qualify for interest capitalization, which reduces the amount of net interest expense reported in any given period.

The following table shows interest expense, net for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Interest expense, net						$	(9,210)					$	(748)					$	(8,462)					>500 %

Interest expense, net for the three months ended March 31, 2024 increased compared to the three months ended March 31, 2023 primarily due to additional borrowing under various arrangements in India.

Other expense, net

Other expense, net is primarily comprised of miscellaneous items and realized gains and losses on the sale of marketable securities and restricted marketable securities.

The following table shows other expense, net for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Other expense, net						$	(2,799)					$	(1,456)					$	(1,343)					92		%

Other expense, net for the three months ended March 31, 2024 increased compared to the three months ended March 31, 2023 primarily due to commitment fees on the Company’s Revolving Credit Facility.

Income tax (expense) benefit

Income tax expense or benefit, deferred tax assets and liabilities, and liabilities for unrecognized tax benefits reflect our best estimate of current and future taxes to be paid. We are subject to income taxes in both the United States and numerous foreign jurisdictions in which we operate, principally Singapore, Malaysia, Vietnam, and India. Significant judgments and estimates are required to determine our consolidated income tax expense. The statutory federal corporate income tax rate in the United States is 21%, and the tax rates in Singapore, Malaysia, Vietnam, and India are 17%, 24%, 20%, and 17%, respectively. In Malaysia, we have been granted a long-term tax holiday, scheduled to expire in 2027, pursuant to which substantially all of our income earned in Malaysia is exempt from income tax, conditional upon our continued compliance with certain employment and investment thresholds. In Vietnam, we have been granted a long-term tax incentive, scheduled to expire at the end of 2036, pursuant to which income earned in Vietnam is subject to reduced annual tax rates, conditional upon our continued compliance with certain revenue and R&D spending thresholds.

The following table shows income tax (expense) benefit for the three months ended March 31, 2024 and 2023:

						Three Months Ended March 31,
(Dollars in thousands)						2024						2023						Three Month Change
Income tax (expense) benefit						$	(18,903)					$	6,888					$	(25,791)					374		%
Effective tax rate						7.4		%				(19.3)		%

Our tax rate is affected by the advanced manufacturing production credit under Section 45X and recurring items such as tax rates in foreign jurisdictions and the relative amounts of income we earn in those jurisdictions. The rate is also affected by discrete items that may occur in any given period but are not consistent from period to period.

Income tax expense increased $25.8 million during the three months ended March 31, 2024 compared to the three months ended March 31, 2023 primarily due to higher pretax income in the current period and higher prior period excess tax benefits associated with share-based compensation.

Critical Accounting Policies and Estimates

In preparing our condensed consolidated financial statements in conformity with U.S. GAAP, we make estimates and assumptions that affect the amounts of reported assets, liabilities, revenues, and expenses, as well as the disclosure of contingent liabilities. Some of our accounting policies require the application of significant judgment in the selection of the appropriate assumptions for making these estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. We base our judgments and estimates on our historical experience, our forecasts, and other available information as appropriate. We believe the judgments and estimates involved in accrued solar module collection and recycling, product warranties, and government grants have the greatest potential impact on our condensed consolidated financial statements. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected. For a description of the accounting policies that require the most significant judgment and estimates in the preparation of our condensed consolidated financial statements, refer to our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our accounting policies during the three months ended March 31, 2024.

Recent Accounting Pronouncements

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740) — Improvements to Income Tax Disclosures, which requires greater disaggregation of an entity’s income tax disclosures. Among other things, ASU 2023-09 requires entities to disclose (i) specific categories in the effective tax rate reconciliation, (ii) pretax income or loss from continuing operations, separated between domestic and foreign jurisdictions, (iii) income tax expense or benefit from continuing operations, separated by federal, state, and foreign jurisdictions, and (iv) income taxes paid to federal, state, and foreign jurisdictions. ASU 2023-09 is effective for public companies for annual periods beginning after December 15, 2024; although early adoption is permitted, we do not expect to do so. We are currently evaluating the impact ASU 2023-09 will have on our consolidated financial statements and associated disclosures.

Liquidity and Capital Resources

As of March 31, 2024, we believe that our cash, cash equivalents, marketable securities, cash flows from operating activities, and contracts with customers for the future sale of solar modules will be sufficient to meet our working capital and capital expenditure needs for at least the next 12 months. In addition, we have availability under our Revolving Credit Facility, under which we have made no borrowings as of March 31, 2024. As necessary, we also believe we will have adequate access to the capital markets. We monitor our working capital to ensure we have adequate liquidity, both domestically and internationally. We intend to maintain appropriate debt levels based upon cash flow expectations, our overall cost of capital, and expected cash requirements for operations, including near-term construction activities and purchases of manufacturing equipment for our newest manufacturing and R&D facilities in the United States. However, our ability to raise capital on terms commercially acceptable to us could be constrained if there is insufficient lender or investor interest due to company-specific, industry-wide, or broader market concerns. Any incremental debt financings could result in increased debt service expenses and/or restrictive covenants, which could limit our ability to pursue our strategic plans.

As of March 31, 2024, we had $2.0 billion in cash, cash equivalents, and marketable securities compared to $2.1 billion as of December 31, 2023. This decrease was primarily driven by purchases of property, plant and equipment for our U.S. and Indian facilities, various operating expenditures, and certain advance payments of raw materials, partially offset by proceeds from borrowings under debt agreements and proceeds from the sale of Section 45X tax credits. As of March 31, 2024 and December 31, 2023, $1.3 billion and $1.2 billion of our cash, cash equivalents, and marketable securities, respectively, was held by our foreign subsidiaries and was primarily based in U.S. dollar denominated holdings. Our investment policy seeks to preserve our investment principal and maintain adequate liquidity to meet our cash flow requirements, while at the same time optimizing the return on our investments. Such policy applies to all invested funds, whether managed internally or externally. Pursuant to such policy, we place our investments with a diversified group of high-quality financial institutions and limit the concentration of such investments with any one counterparty. We place significant emphasis on the creditworthiness of financial institutions and assess the credit ratings and financial health of our counterparty financial institutions when making investment decisions.

We utilize a variety of tax planning and financing strategies in an effort to ensure that our worldwide cash is available in the locations in which it is needed. If certain international funds were needed for our operations in the United States, we may be required to accrue and pay certain U.S. and foreign taxes to repatriate such funds. We maintain the intent and ability to permanently reinvest our accumulated earnings outside the United States, with the exception of certain subsidiaries for which applicable income taxes have been recorded as of March 31, 2024, but we may choose to reevaluate this intent in one or more jurisdictions in the future. In addition, changes to foreign government banking regulations may restrict our ability to move funds among various jurisdictions under certain circumstances, which could negatively impact our access to capital, resulting in an adverse effect on our liquidity and capital resources.

Although we compete in markets that do not require solar-specific government subsidies or support programs, such incentives continue to influence the demand for PV solar energy around the world. For example, the financial incentives provided by the IRA are expected to increase both the demand for, and the domestic manufacturing of, solar modules in the United States. We continue to evaluate the extent of benefits available to us by the IRA, which are expected to favorably impact our liquidity and capital resources in future periods. For example, we currently expect to qualify for the advanced manufacturing production credit under Section 45X of the IRC, which provides certain specified benefits for solar modules and solar module components manufactured in the United States and sold to third parties. Such credit may be refundable by the IRS or transferable to a third party and is available from 2023 to 2032, subject to phase down beginning in 2030. Based on the current form factor of our modules, we expect to qualify for a credit of approximately 17 cents per watt for each module produced in the United States and sold to a third party. Accordingly, we expect the advanced manufacturing production credit will provide us with a significant source of funding throughout its 10-year period. In December 2023, we entered into an agreement with Fiserv for the sale of $687.2 million of Section 45X tax credits we generated during 2023, for aggregate cash proceeds of $659.7 million. We received cash proceeds of $480.0 million during the three months ended March 31, 2024 and received the remaining cash proceeds of $179.7 million in April 2024. For more information about certain risks associated with the benefits available to us under the IRA, see Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023. See Note 5. “Government Grants” to our condensed consolidated financial statements for further information about government grants.

As a result of various market opportunities and increased demand for our products, we commenced production of Series 7 modules at our third manufacturing facility in Ohio and our first manufacturing facility in India during 2023. We are in the process of expanding our manufacturing capacity by approximately 7.6 GW, including the construction of our fourth and fifth manufacturing facilities in the United States, which are expected to commence operations in the second half of 2024 and late 2025, respectively; and the expansion of our manufacturing footprint at our existing facilities in Ohio, which is expected to be completed in the first half of 2024. In aggregate, we currently expect our remaining investment in these U.S. facilities and upgrades to be approximately $1.6 billion, which we expect to incur throughout 2024 and 2025. The capital expenditures necessary to expand our capacity may be financed, in part, by cash on hand, advance payments from customers for module sales in future periods, the advanced manufacturing production credit described above, and/or near-term bridge financing instruments.

In addition to the expansion plans described above, we continue to increase the nameplate production capacity of our existing manufacturing facilities by improving our production throughput, increasing module wattage (or conversion efficiency), and reducing manufacturing yield losses. We have a demonstrated history of innovation, continuous improvement, and manufacturing success driven by our significant investments in various R&D initiatives. We continue to invest significant financial resources in such initiatives, including the completion of a dedicated R&D facility in the United States to support the implementation of our technology roadmap. We expect such R&D facility to feature a high-tech pilot manufacturing line, allowing for the production of full-sized prototypes of thin film and multi-junction PV modules. Such R&D facility is expected to be completed in the first half of 2024. During 2024, we expect to spend between $1.8 billion and $2.0 billion for capital expenditures, including the new facilities mentioned above, and upgrades to machinery and equipment that we believe will further increase our module wattage and expand capacity and throughput at our manufacturing facilities. These capital investments, and any other potential investments to implement our technology roadmap, may require significant internal and possibly external sources of capital, and may be subject to certain risks and uncertainties described in Item 1A. “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.

We have also committed and expect to continue committing significant working capital to purchase various raw materials used in our module manufacturing process. Our failure to obtain raw materials and components that meet our quality, quantity, and cost requirements in a timely manner could interrupt or impair our ability to manufacture our solar modules or increase our manufacturing costs. Accordingly, we may enter into long-term supply agreements to mitigate potential risks related to the procurement of key raw materials and components, and such agreements may be noncancelable or cancelable with a significant penalty. For example, we have entered into long-term supply agreements for the purchase of certain specified minimum volumes of substrate glass and cover glass for our PV solar modules. We have the right to terminate certain of these agreements upon payment of specified termination penalties (which, in aggregate, are up to $535 million as of March 31, 2024 and decline over the remaining supply periods). Additionally, for certain strategic suppliers, we have made, and may in the future be required to make, certain advance payments to secure the raw materials necessary for our module manufacturing.

We have also committed certain financial resources to fulfill our solar module collection and recycling obligations, and have established a trust under which these funds are put into custodial accounts with an established and reputable bank. As of March 31, 2024, such funds were comprised of restricted marketable securities of $194.5 million and associated restricted cash and cash equivalents balances of $9.0 million. As of March 31, 2024, our module collection and recycling liability was $134.3 million. Trust funds may be disbursed for qualified module collection and recycling costs (including capital and facility related recycling costs), payments to customers for assuming collection and recycling obligations, and reimbursements of any overfunded amounts. Investments in the trust must meet certain investment quality criteria comparable to highly rated government or agency bonds. As necessary, we adjust the funded amounts for our estimated collection and recycling obligations based on the estimated costs of collecting and recycling covered modules, estimated rates of return on our restricted marketable securities, and an estimated solar module life of 25 years, less amounts already funded in prior years.

As of March 31, 2024, we had no off-balance sheet debt or similar obligations, other than financial assurance related instruments, which are not classified as debt. We do not guarantee any third-party debt. See Note 10. “Commitments and Contingencies” to our condensed consolidated financial statements for further information about our financial assurance related instruments.

Cash Flows

The following table summarizes key cash flow activity for the three months ended March 31, 2024 and 2023 (in thousands):

						Three Months Ended March 31,
						2024						2023
Net cash provided by (used in) operating activities						$	267,723					$	(34,598)
Net cash used in investing activities						(568,628)						(645,227)
Net cash provided by financing activities						40,697						107,686
Effect of exchange rate changes on cash, cash equivalents, restricted cash, and restricted cash equivalents						(1,938)						1,495
Net decrease in cash, cash equivalents, restricted cash, and restricted cash equivalents						$	(262,146)					$	(570,644)

Operating Activities

The increase in net cash provided by operating activities was primarily driven by proceeds from sale of Section 45X credits and higher cash receipts from module sales in current period, partially offset by lower advance payments received for future module sales and increased payments made to suppliers in the current period.

Investing Activities

The decrease in net cash used in investing activities was primarily due to lower purchases of marketable securities in the current period, partially offset by higher purchases of property, plant and equipment in the current period for our U.S. and Indian facilities.

Financing Activities

The decrease in net cash provided by financing activities was primarily due to lower net borrowings under various debt agreements in the current period.