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Good afternoon, and welcome to First Solar's Second Quarter 2025 Earnings Call. Today's call is being webcast live on the Investors section of First Solar's website at investor.firstsolar.com. [Operator Instructions] And please note that today's call is being recorded. I would now like to turn the conference over to your host, Byron Jeffers, Head of Investor Relations. Please go ahead, sir.
Good afternoon. Thank you for joining us on today's earnings call. Joining me today are our Chief Executive Officer, Mark Widmar; and our Chief Financial Officer, Alex Bradley. During this call, we will review our financial performance for the quarter and discuss our business outlook for the remainder of 2025. Following our remarks, we will open the call for questions.
Before we begin, please note that some statements made today are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from management's current expectations. We undertake no obligation to update these statements due to new information or future events. For a discussion of factors that could cause these results to differ materially, please refer to today's earnings press release and our most recent annual report on Form 10-K as supplemented by our other filings with the SEC, including our most recent quarterly report on Form 10-Q. You can find these documents on our website at investor.firstsolar.com.
With that, I'm pleased to turn the call over to our CEO, Mark Widmar. Mark?
Good afternoon. Thank you for joining us today. Beginning on Slide 3, I will share some key highlights from Q2 2025. We recorded 3.6 gigawatts of module sales during the quarter, above the midpoint of what we forecasted on the previous earnings call. Our Q2 earnings per diluted share came in above the high end of our guidance range at $3.18 per share.
From a manufacturing standpoint, we produced 4.2 gigawatts in Q2 with 2.4 gigawatts produced from our U.S. facilities and 1.8 gigawatts from our international facilities. We progressed our domestic capacity expansion during the quarter, continuing to ramp up at our Alabama facility. As of today, equipment installation and commissioning at our Louisiana site is complete. We have begun the integrated production run and expect to complete plant qualification in October.
Once fully ramped, this facility is projected to boost our U.S. nameplate manufacturing capacity to over 14 gigawatts by 2026. As it relates to technology, we have seen further improvements regarding our CuRe technology platform from both a performance and a manufacturability standpoint over the course of the quarter. Recent field data from deployed CuRe modules continues to validate the enhanced energy profile expected from the improved temperature response and bifaciality of CuRe. This field data is consistent with the superior degradation rate that we have seen through laboratory accelerated life testing.
In addition, progress continued during the quarter at our new perovskite development line located at our Perrysburg campus. The line, on track for full in-line runs in August, is expected to produce small form factor modules featuring a perovskite semiconductor. We have continued to timely meet our internal metrics for our perovskite development program, including the achievement of initial stage efficiency, stability and manufacturability objectives. We are pleased with the progress we are making towards commercializing our perovskite technology over the next several years.
Finally, we are proud to have published our annual corporate responsibility report yesterday. This report highlights First Solar's efforts to lead the way in strengthening support for solar by leveraging and extending our differentiation. As noted in the report, our vertical integration drives resource efficiency, enabling our products to deliver up to 5x greater energy return on investment than crystalline silicon panels made from components manufactured in China. This not only supports our nation's energy independence, it helps unleash American energy dominance.
We also continue to achieve and surpass key metrics. For example, 2024 marked the second straight year that we have nearly doubled the volume of water we recycle, conserving resources in water-scarce regions. We continued our focus on reducing waste, diverting 88% of waste from disposal and increasing recycling, recovering a global average of 95% of materials from recycled panels. These are among just a few of the highlights of our approach to responsible corporate stewardship that can be found in the report, which is available through our website.
Turning to Slide 4. I would like to focus on the current U.S. policy and trade environment. From an industrial policy standpoint, earlier this month, the President signed the new reconciliation legislation that we believe places First Solar in a greater position of strength than it was following the passage of the Inflation Reduction Act of 2022. As it relates to Section 45X advanced manufacturing tax credits, under this new law, key provisions for solar were maintained and new restrictions severely limit 45X eligibility for products manufactured by or with material assistance from foreign entities of control, or FEOCs, such as Chinese solar manufacturers.
These restrictions address one of the biggest loopholes under the IRA, and we expect these FEOC provisions will factor into capital commitment decisions for U.S. manufacturing by our Chinese competitors. In our view, it is not unreasonable to expect there will be limited Chinese solar manufacturing in the U.S. in the foreseeable future, which, together with other recent industrial policy and trade developments that I will discuss momentarily, may reduce the supply of domestic content. Turning to the investment tax credit. The legacy PTC and ITC, which support project safe harbored by the end of 2024 and require placed in service by year-end 2028, remains unchanged by the new legislation.
We expect that these projects will proceed as scheduled, thereby strengthening the resiliency of our existing contracted backlog. We have a strong contracted position for our U.S. production through 2028, which we believe, coupled with the current policy environment, creates a strategic foothold to integrate our international supply with U.S. and potentially create a U.S. finishing line to leverage our Series 6 and Series 7 international assets. In addition, the provisions in the reconciliation legislation, relating to the new technology-neutral investment and production tax credits, potentially incentivize near-term demand for new bookings with deliveries through the end of this decade.
There are 3 reasons for this potential demand catalyst. Firstly, under the new tech neutral credits, projects that commenced construction prior to July of 2026 will have a required place in service deadline by the end of 2030, thereby potentially incentivizing new procurement to safe harbor projects through 2030. Secondly, projects that commence construction starting January 1, 2026, are subject to the new FEOC material assistance restrictions in order to be eligible for the tech-neutral credits. And thirdly, projects that have not commenced construction before June 16, 2025, will be required to meet increasing domestic content thresholds should they seek to qualify for the related bonus.
While there remains uncertainty around the structure and scope of the forthcoming construction guidance, pursuant to a recent executive order, we expect this guidance will be consistent with long-standing rules. Note, the same executive order also mandates the development of FEOC guidance, focusing on the threat to national security by "making the United States dependent on supply chains controlled by foreign adversaries." As indicated earlier, these new demand drivers also potentially support a business case to establish one or more lines in the United States to finish front-end production initiated within an international fleet.
Leveraging existing overseas capital assets and our skilled workforce for front-end production, combined with new back-end factories in the U.S., could enable additional near-term FEOC-free supply for the U.S. market as well as improve the gross margin profile of our sales by reducing tariff charges and logistics costs associated with importing finished modules. Moving from industrial policy to trade policy, we continue to see evidence that pursuing antidumping and countervailing duty or AD/ CVD cases, while time-consuming and expensive, is effective at addressing illegal trade practices, imports of cells and modules from Cambodia, Malaysia, Thailand and Vietnam, which were subject of the Solar 3 AD/CVD case meaningfully decreased in the January through May of 2025 period as compared to the equivalent period in 2024. However, trade data also demonstrates an influx of cells and modules imported into the U.S. from other countries as the Chinese crystalline silicon industry continues to move production to circumvent existing trade laws.
Against this backdrop, the Alliance for American Solar Manufacturing and Trade, a distinct but similar coalition from that which launched Solar 3 case AD/CVD case directed at Cambodia, Malaysia, Thailand and Vietnam, has filed a new AD/CVD petition with the U.S. International Trade Commission and the U.S. Department of Commerce, seeking investigations into the violation of trade laws by Chinese-owned companies operating through entities in Laos and Indonesia as well as Indian headquartered companies, which we believe utilize a Chinese subsidized supply chain. Separately, the Department of Commerce has made the decision to self-initiate a Section 232 investigation into imports of polysilicon and its derivatives.
While the scope of derivatives is unclear, this could implicate downstream pricing for polysilicon-based products such as wafers, cells or modules, introducing a new source of uncertainty for those relying on Chinese-tied crystalline silicon procurement. The scope of the investigation includes many of the strategic vulnerabilities created by China's dominance of the polysilicon production, such as the risk posed by over-concentrated supply chains, subsidy fuel mandatory trade practices, systematic overcapacity and the potential for export restrictions by U.S. adversaries. In addition, we are encouraged by recently available, though not broadly publicized, data regarding the processing of cell and module entries by the U.S.
Custom and Border Protection, or CBP, that were imported during the Biden administration's June 2022 to June 2024 solar moratorium. As a reminder, the moratorium provided AD/CVD duty-free treatment for Southeast Asia imports if the entries were both circumventing the China Solar AD/CVD orders and were utilized in projects no later than December of 2024. The U.S. government recently reported that approximately 44,000 entries were processed during the moratorium window, and that more than half, roughly 24,000, entries did not qualify for the moratorium and remain subject to the application of AD/CVD tariffs.
The government reports that it is taking multiple approaches to collect duties on these imports. The remaining approximately 20,000 continue to be under manual CBP review, which could take several months to complete and may become subject to the application of these tariffs. In short, despite the Biden administration's ill-advised enforcement suspension, no single entry has yet been closed with the benefits of the tariff moratorium and all remain subject to potential AD/CVD tariff payments, representing potentially significant contingent liabilities for the importers of record of these foreign produced crystalline silicon modules.
We applaud CBP for the thorough entry-by-entry process they are running. Our determination to advocate for strong industrial policy represented by the new reconciliation legislation is matched by our commitment to employ the rule of law to help create a level playing field for domestic manufacturers. As we have long stated, we are supportive of free trade and international competition so long as this trade is also fair and within the constructs of the law. Unfortunately, in our industry, China relentlessly engages in unfair, in our view, illegal trade practices, leaving us no choice but to seek the enforcement of existing law that are designated to address these practices.
This respect for the rule of law also underpins our effort to enforce our TOPCon patent portfolio against potential infringements. For example, following our previously announced filing of a complaint against various JinkoSolar entities, alleging infringement of our U.S. TOPCon patents, during the quarter, we filed a similar lawsuit against various Canadian solar entities. These actions reflect our intention to actively enforce our intellectual property rights against companies that we believe are stringent upon our long-standing TOPCon technology patents.
In summary, our policy, trade and legal efforts can be viewed as a consistent 3-pronged approach. Firstly, a dedicated commitment to continuously advocate for strong industrial policies that enable domestic solar manufacturers in the face of foreign adversaries seeking to dominate critical aspects of the U.S. energy supply chain. Secondly, a commitment to employ the rule of law against the industrial representation of those adversaries who seek to violate our trade laws. And thirdly, a commitment to employ the rule of law to enforce long-established principles of intellectual property rights protection.
As discussed during our previous earnings call, we are not immune from adverse effects related to trade policy. Later in the call, Alex will address the impact of the global tariff measures on our international production capacity, considerations as well as on our bill of material costs. That said, notwithstanding these headwinds, together with the uncertainty related to the executive order mentioned earlier as well as the potential implications for the recent Department of Interior directive, ordering secretary's approval of many renewable project development activities, we believe that the recent policy and trade developments have, on balance, strengthens First Solar's relative position in the solar manufacturing industry.
As illustrated on Slide 5, at a broader macro level, we believe the long-term position of the utility scale solar industry as a whole remains strong given significantly increasing demand for electricity and the ability of solar generation to meet this demand. As we've stated previously, American leadership in AI, cryptocurrency and reshoring manufacturing needs abundant cost-competitive electricity generation. Absent new generating capacity coming online quickly, there are risk of not being enough electricity to power the strategically important industries to their full potential before the current administration ends.
Given its attributes of low cost and high speed to deployment relative to other sources of energy generation, solar should clearly be a significant part of the near-term solution mix. This argument is supported by numerous recent reports. For example, in June, Lazard's most recent levelized cost of energy report demonstrates that utility scale PV is cost competitive with conventional forms of energy generation, including natural gas and nuclear. This fact does not consider the practicalities of a typical natural gas project development time line, which requires approximately 5 years to complete, assuming it is untethered by supply chain constraints or the availability of pipeline infrastructure or nuclear projects, which take about twice as long and creates a potential supply chain strategic vulnerability requiring sourcing uranium from Russia and China.
We believe that on a fundamental basis, with its cost competitive energy and faster time to power profile, the case for utility-scale solar generation is compelling regardless of the policy environment. This case is underpinned by the role that utility-scale solar can play alongside energy storage as a viable, reliable, cost-competitive, complement to the eventual scale-up in nuclear power generation capacity. Utility-scale solar has also been shown to help lower electricity prices, dampening the effects of inflation while supporting grid reliability and helping utilities navigate peak demand in extreme conditions, lowering the likelihood of blackouts.
Utility-scale solar is mission ready today to help power the key pillars of economic growth, which we believe places First Solar a utility scale leader in a position of strength. I'll now turn the call over to Alex to discuss shipments, bookings, Q2 financials and guidance.
Thanks, Mark. Beginning on Slide 6, as of December 31, 2024, our contracted backlog totaled 68.5 gigawatts valued at $20.5 billion or approximately $0.299 per watt. Through Q2, we recognized 6.5 gigawatts in sales. We continued our disciplined approach to new bookings, strategically leveraging the strength of our customer backlog amid the policy uncertainty that continued during the quarter and limited pricing visibility.
As a result, we recorded 0.9 gigawatts of gross bookings in the first half of the year. Offsetting this, we recorded 1.1 gigawatts of debookings driven by contract terminations, resulting in net debookings of 0.2 gigawatts through June 30, 2025. Notably, 0.9 gigawatts of the de-bookings were related to our Series 6 international products and were recorded in our Q2 results. As a result, our quarter end contracted backlog stood at 61.9 gigawatts valued at $18.5 billion or approximately $0.299 per watt. As a reminder, a significant portion of this contracted backlog includes pricing adjustments that provide the opportunity to increase the base ASP contingent on meeting specific milestones within our current technology road map by the time of delivery.
These figures exclude such potential adjustments, including additional changes tied to module bin, freight overages, commodity price shifts, committed wattage, U.S. content volumes and tariff changes. Following the enactment of the recent reconciliation bill, we saw an increase in customer engagement, resulting in 2.1 gigawatts of new bookings as customers pursued near-term opportunities. Of this total, approximately 1.4 gigawatts were Series 6 international product, 0.9 gigawatts of which was re-contracted volume that was previously terminated in Q2. Including the associated termination payments, this re-contracted volume was effectively sold at approximately $0.33 per watt.
The remaining 0.7 gigawatts of the 2.1 gigawatts was contracted at approximately $0.32 per watt, excluding the impact of adjusters in India domestic sales. As of today, our total contracted backlog stands at 64 gigawatts. While demand for our U.S. manufactured products remain strong, we continue to face an under-allocation of Series 6 production from our Malaysia and Vietnam facilities. This imbalance initially resulted from customers exercising contractual delivery shift rights out to 2025 due to policy uncertainty and has more recently been exacerbated by increased tariff pressure.
These factors contribute to the termination of a portion of our Series 6 international backlog this quarter. Of our total 64 gigawatt backlog, approximately 11 gigawatts consist of international Series 6 products. Of that, approximately 10.1 gigawatts is planned for sale into the U.S. with the vast majority under contracts that include circuit breaker provisions designed to mitigate tariff exposure as referenced on our previous earnings call. Accordingly, the inclusion of tariff mitigation provisions in our contracts serves as a strategic safeguard, enabling us to proactively manage and limit potential gross margin erosion should tariff-related impacts not be resolved through customer engagement.
Beyond these immediate drivers and contractual mitigants, we are also continuing to observe indicators a broader strategic shift among multinational oil and gas and power utilities companies, particularly those headquartered in Europe, away from renewable project development and back towards fossil fuel investments. Moving to Slide 7. Our total pipeline of mid- to late-stage booking opportunities remain strong with booking opportunities of 83.3 gigawatts and mid- to late-stage booking opportunities of 20.1 gigawatts. Our mid- to late-stage pipeline includes 3.9 gigawatts of opportunities that are contracted subject to conditions precedent.
As a reminder, signed contracts in India will not be recognized as bookings until we've received full security against the offtake. Turning to Slide 8, I'll cover our second quarter financial results. We recognized 3.6 gigawatts of module sales, including 2.3 gigawatts from our U.S. manufacturing facilities. This resulted in second quarter net sales of $1.1 billion, an increase of $0.3 billion from the first quarter.
The increase was primarily driven by an anticipated increase in shipment volumes and stronger demand for domestically produced modules. Our second quarter results included $63 million in contract termination payments tied to 1.1 gigawatts of volume with $50 million related to 0.9 gigawatts of terminated Series 6 international volume. Note this 1.1 gigawatts of terminated volume represented only less than 2% of our contracted backlog as of second quarter end. Gross margin for the quarter was 46%, up from 41% in Q1. The increase was primarily driven by higher contract termination revenue and a greater proportion of modules sold from our U.S. manufacturing facilities, which are eligible for Section 45X tax credits.
These factors were partially offset by increased detention and demurrage charges, higher core costs associated with a sales mix weighted towards U.S.-produced modules and a change in Section 45X credit valuation between periods. The sale of a portion of these credits through an agreement with a leading financial institution, combined with our expectation to sell the majority of credits generated in 2025, resulted in a cumulative $29 million reduction to cost of sales, reflecting the anticipated value of the remaining credits generated through Q2. As an update on warranty-related matters, we did not incur any new warranty charges this quarter related to the Series 7 modules affected by prior manufacturing issues.
As of the end of Q2, we continue to hold approximately 0.7 gigawatts of potentially impacted Series 7 inventory. We're making continued progress in reaching settlement agreements for impacted Series 7 modules from our initial production, consistent with our disclosed warranty range. SG&A, R&D and production start-up expenses totaled $138 million in the second quarter, reflecting an increase of approximately $15 million as compared to the first quarter. The primarily driver of this increase was production start-up costs associated with the ramp-up of our Louisiana facility.
Additional onetime expenses included broker fees related to the sale of our Section 45X tax credits and legal costs tied to the previously disclosed SEC division of enforcement investigation. And we're pleased to report the SEC has concluded its inquiry to First Solar and the staff does not intend to recommend any enforcement action against the company. Operating income for the quarter was $362 million, which included $125 million in depreciation, amortization and accretion; $15 million in ramp and underutilization costs; $31 million in production start-up expense; and $7 million in share-based compensation.
Nonoperating income resulted in a net expense of $9 million in the second quarter, representing a decline of approximately $5 million as compared to the prior quarter. This was primarily driven by lower interest income as a result of a decrease in investable cash, cash equivalents and marketable securities. Tax expense for the second quarter was $10 million compared to $8 million in the first quarter. This increase was primarily driven by a change in pretax income and the jurisdictional mix of such income.
And this resulted in second quarter earnings of $3.18 per diluted share. Turning to Slide 9. I'd like to discuss select balance sheet items and summary cash flow information. As of the end of Q2, our total balance of cash, cash equivalents, restricted cash, restricted cash equivalents and marketable securities was $1.2 billion, an increase of approximately $0.3 billion from the prior quarter. This increase was primarily driven by the sale of certain of our Section 45X tax credits generated in the first half of 2025. Furthermore, as disclosed in our Form 8-K filed yesterday, on July 28, we entered into a new tax credit transfer agreement to sell up to $391 million of Section 45X tax credits, generating up to approximately $373 million in proceeds.
The transaction is structured in 3 installments with approximately $124 million received in connection with closing and the remaining payments expected in the fourth quarter of 2025. This transaction further demonstrates the liquidity of the 45X credit market and the proceeds will continue to support our near-term working capital and capital expansion priorities. The quarterly increase in accounts receivable was primarily driven by higher sales volumes, with approximately 2/3 of our quarterly revenue being recognized in June, resulting in back-end weighted receivables. As of quarter end, total overdue balances stood at approximately $394 million.
This includes a previously negotiated settlement with a customer following a payment default, which deferred payments to Q4, of which $93 million remains outstanding, with interest payments being current and made on schedule. Also included $70 million in cumulative uncollected receivables related to customer termination payments. These overdue termination- related receivables correspond to approximately 1.8 gigawatts of canceled volume. In such cases, we're actively pursuing litigation or arbitration to enforce our contractual rights and recover the payments owed.
Inventory balances increased by $121 million, consistent with expectations, reflecting the backloaded revenue profile tied to continuous production throughout the year to fulfill contracted commitments. We anticipate our working capital position to improve throughout the year as our module shipment and sale profile increases relative to production, inventories decline, and we continue to collect on our accounts receivable. While they remain contractually due, overdue termination payments are expected to remain outstanding, pending resolution of arbitration and litigation proceedings. Capital expenditures totaled $288 million in the second quarter, primarily driven by investments in our newest facility in Louisiana, where we've begun the integrated production run and expect to complete plant qualification in October.
Our net cash position increased by approximately $0.2 billion to $0.6 billion as a result of the aforementioned factors. Before we turn to our updated financial outlook, I'd like to revisit the key assumptions informing our current guidance in light of recent policy and trade developments. These include tariff-related impacts on anticipated international module sales volumes and the associated logistics costs. As outlined on Slide 10, our prior guidance was based on a binary set of tariff policy scenarios, each with distinct operational and financial implications.
At the upper end of our guide, we assumed the continuation of the universal tariff regime through year-end 2025, applying a 10% tariff and maintaining the suspension of country-specific reciprocal tariffs, excluding China. The lower end reflected the same baseline, but incorporated the impact of reciprocal tariffs taking effect as of July 9, with rates of 26% for India, 24% for Malaysia and 46% for Vietnam. Our revised guidance incorporates the anticipated implementation of recently negotiated tariffs of 25% to Malaysia and 20% for Vietnam. As it relates to India, our revised guidance incorporates the previously announced reciprocal tariff rate of 26% for India and does not incorporate the President's announcement yesterday of a 25% rate plus an unquantified penalty for India's purchase of military equipment and energy from Russia.
Our volumes sold outlook for U.S. manufactured modules remains unchanged at 9.5 to 9.8 gigawatts. Our forecast for sales from our India manufacturing entity remains unchanged. And combined with an increase at the low end of the Series 6 international range, we now forecast international module sales of 7.2 to 9.5 gigawatts for total module sales of 16.7 to 19.3 gigawatts. The international volume sold range remains wide and reflects both uncertainty and opportunity related to the outcome of tariff cost discussions with customers, the Section 232 action related to polysilicon and its derivatives, FEOC-related restrictions and the Solar 4 AD/CVD investigation.
In the event of customer terminations resulting from an inability or unwillingness to absorb tariff impacts on our international product, we plan to address the resulting supply-demand imbalance through additional curtailments, including the potential temporary idling of production. As such, the lower end of our guidance range reflects increased underutilization period costs and the associated loss margin tied to these volume assumptions. Accordingly, this curtailment strategy does not assume the incremental costs related to warehousing detention, demurrage or other logistics associated with internationally produced modules.
It's important to note that certain indirect or currently unknown costs related to these tariffs, including potential restructuring charges or asset impairments, are excluded from the guidance provided today. As it relates to tariff impact, based on a doubling of Section 232 tariffs on aluminum and steel from 25% to 50% as well as updated rates applicable to other imports, including substrate glass and interlayer, we anticipate a full year production cost impact from tariffs of approximately $70 million. We forecast approximately $80 million to $130 million in tariffs on finished goods imports, net of contractual recoveries from customers.
It's important to note that without tariff recovery, international module sales may be dilutive to earnings. As such, the ability to recover tariffs is a key factor in our production and sales volume guidance. If we are unable to effectively negotiate these recoveries, we may further reduce international Series 6 production below current assumptions, which would result in an additional underutilization charges. Underutilization charges related to running our international Series 6 production below full production capacity with under-absorption costs accounted for as period expenses are forecast to total approximately $95 million to $180 million for the full year.
Additionally, nonstandard freight, warehousing, detention, demurrage and other logistics-related costs have increased approximately $100 million to $400 million for the full year. This increase was driven by several factors, accelerated imports ahead of the July 9 and subsequently revised August 1 tariff implementation dates; shorter ocean freight transit times, which led to an earlier-than-expected port arrivals; Q2 customer terminations of Series 6 international products; lower-than-forecasted Series 6 international sales, resulting in a short notice inventory buildup; and ongoing efforts to avoid anticipated Section 301 tonnage fees on Chinese-built vessels beginning in Q4. And lastly, although our forecast value of 2025 Section 45X tax credits generated remains unchanged, our updated guidance now assumes the sale of these credits from all but one of our U.S. facilities.
The remaining facility, we plan to utilize the credits to offset taxable income and claim any residual benefit via direct pay. Accordingly, we've reduced the projected value of Section 45X tax credits in our guidance by approximately $75 million. I'll now cover the full year 2025 guidance ranges on Slide 11. Our net sales guidance is between $4.9 billion and $5.7 billion, which includes an unchanged range of U.S. manufactured volume and India manufactured volumes sold, our updated narrower range of international Series 6 volumes sold and includes contract termination revenue of $63 million recognized in our Q2 results.
Gross margin is expected to be between $2.05 billion and $2.35 billion or approximately 42%, which includes approximately $1.58 billion to $1.63 billion of Section 45X tax credits, $95 million to $180 million of ramp and underutilization costs, $80 million to $130 million of tariffs on finished goods imports and $70 million of tariffs on bill of material imports. SG&A expense is expected to total $185 million to $195 million and R&D is expected to total $230 million to $250 million. SG&A and R&D combined expense is expected to total $415 million to $445 million, and total operating expenses, which includes $65 million to $75 million of production start-up expense, are expected to be between $480 million and $520 million.
Operating income is expected to range between $1.53 billion and $1.87 billion, implying an operating margin range of approximately 32%. This guidance includes $160 million to $255 million in combined ramp, underutilization and plant start-up costs as well as approximately $1.58 billion to $1.63 billion in Section 45X credits, net of the anticipated loss associated with the sale of these credits. This results in a full year 2025 earnings per diluted share guidance range of $13.5 to $16.5, the midpoint of which is unchanged from our previous guidance, notwithstanding the approximately $0.70 of impact to forecasted diluted EPS from our updated guidance now assuming the sale of 2025 Section 45X credits from all but one of our U.S. facilities.
From an earnings cadence perspective, we anticipate module sales of 5 to 6 gigawatts for the third quarter with $390 million to $425 million in Section 45X credits, resulting in earnings per diluted share between $3.30 and $4.70. Capital expenditures for 2025 remain consistent with prior guidance, expected to range between $1 billion and $1.5 billion. Our year-end 2025 net cash balance is anticipated to be between $1.3 billion and $2 billion. Turning to Slide 12, I'll summarize the key messages from today's call. Our Q2 earnings per diluted share came in above the high end of our guidance range at $3.18 per share, primarily due to customer contract termination payments and a favorable mix of U.S. versus international products sold within the quarter.
Our forecast for U.S. produced volumes sold remains unchanged for the year. In the near term, ongoing trade policy uncertainty, particularly around the tariff regime has introduced challenges that were not anticipated at the start of the year and have persisted and continuously evolved throughout. We've updated our guidance to reflect the expected impact of the most recent proposed tariffs other than the President's indication yesterday of a potential penalty rate applying to India and our current outlook on their implications. We note the midpoint of our diluted EPS guidance remains unchanged, even with the approximately $0.70 of impact of forecast diluted EPS in our updated guidance, which assumes the sale of 2025 Section 45X credits from all but one of our U.S. facilities.
Looking ahead, we are, on balance, pleased with the overall industrial and trade policy environment that has emerged over recent weeks. We continue to remain confident in the long-term outlook for U.S. solar energy demand and First Solar's continued leadership, underpinned by a vertically integrated manufacturing platform, domestic supply chain, non-FEOC profile and proprietary CadTel technology. Demand for our U.S. manufactured product remains strong, and our updated outlook continues to reflect the potential long-term resilience of our Series 6 international product, contingent on the U.S. market's ability to adapt amid ongoing policy and trade uncertainty.
With that, we conclude our prepared remarks and open the call for questions. Operator?
We'll take our first question today from Brian Lee from Goldman Sachs.
Kudos on the nice execution. I think obviously, there's going to be a lot of focus here on what seems to be incremental improvement in the bookings environment as well as some expansion in kind of your pricing power based on some of the numbers you rattled off. So maybe just digging into that a bit, so 2-plus gigawatts bookings just in the month of July, presumably pent-up demand waiting for OBBBA to get through to the finish line. What kind of run rate bookings kind of are you seeing real time?
Like, what can we read into the 2-plus gigawatts of bookings just in the month of July? And then maybe as a follow-up, just on the pricing side, the $0.32 to $0.33 per watt, depending on which portion of the bookings you're talking about, a couple of pennies higher, several pennies higher, than what you had been run-rating at. What does that reflect? Is that AD/CVD?
Is it FEOC? Is it domestic content entitlement? Like, how much of that is actually being captured already? And what do you think could still be part of that pricing picture as you move through the next couple of quarters and into '26?
All right. Thanks, Brian. I'll take that. First off, I would say that we're still learning.
We're kind of filling our way around in terms of what's happening in the market and what are the implications around pricing. Clearly, after July 4, when the bill was signed, we had a lot of inbounds, a lot of questions, a lot of inquiries, a lot of people trying to think through their safe harbor strategy. And what's really nice when you think about -- well, we already had safe harbor, largely, it was through '28, okay, and really robust demand for that period of window. Now kind of where we are right now, you've got a window now that will take that activity all the way out through 2030, right?
So another 2 more years of safe harbor. Contingent -- depending on what ultimately happens through the executive order, it's given us a nice -- the industry a nice runway to move forward to the end of this decade, which is what we all love to have in terms of long-term visibility and certainty. When we look at the individual drivers and trying to translate that into what sort of created the ongoing engagement, I would argue, in the bookings we saw in July, it's a little bit of everything. Some of it is not wanting the safe harbor for projects that would then be completed in 2029. Some of it is, you call it FEOC or you could call it AD/CVD related, and a large volume of the bookings was related to a customer who had already committed volume or believe they had committed volume from a Chinese supplier.
And that Chinese supplier reneged on that volume. And that volume was actually needed in kind of the '26 time frame. And so they needed to react very quickly in order to recover and get a certainty of the supply chain available, and we were able to leverage kind of the opportunistic debooking that we saw in the quarter plus some inventory position we had on international volumes in order to fulfill that requirement for that particular customer. So I would say there's still good momentum.
I was talking with our Chief Commercial Officer today, and we got a number of deals near term that we would expect to close that could add up to another gigawatt here near term. So we're encouraged. We're going to continue to sort of fill our way through it, and we'll do a little price discovery and kind of see where everything settles in. But as we said, we've done a lot here to try to best position in this market and to address a level playing field.
And we think we're finally getting into that position, and we think there's opportunity for additional price in terms of our average ASPs. We'll have to sort of discover where that ultimately lands, but we're encouraged with what we're seeing right now.
Moving on to Mark Strouse from JPMorgan.
Just going back to the last point, Mark, on some of your customers that are contracted out through year-end '28. To the extent that there is a negative change in the -- sorry, in the safe harbor language from the executive order. Can you just talk about kind of the percentage of that backlog that could potentially be at risk that's contractually open for them to cancel?
So first off, I just want to make sure we're clear on one thing. The executive order was not intended to address the Section 48 and 45 ITC and PTC that was safe harbor at the end of '24. And from that point in time, you have 4 calendar years in order to complete and build your project and place them in service. So that executive order shouldn't have any impact relative to the legacy Section 48 and Section 45. The intent of the executive order was to focus on the tech-neutral ITC, PTC and to focus on a couple of different things. One is to ensure there's true substance and appropriate guidance as it relates to what determines commenced construction, and there's a couple of different ways to do that.
One is through committing 5% or so of the CapEx of a project or implementing physical activities at the project or at the site, physical work. So those are being looked at to provide definition and guidance. The reconciliation bill alluded to that, a need for guidance. I think the guidance was originally to be placed out no later than end of 2026. Executive order came out after the bill was signed saying, "Hey, we want that closer dated." So it has effectively a 45-day window, which I think goes out to August 18, where that guidance is to be provided or notice of guidance.
It also has some FEOC provisions in there as well. So it's not just to address the commenced construction. It's also to address some of the FEOC provisions and to effectively ensure that the investments that we're making were not tethering back into nations that could be adversaries such as Russia and China and others. So the 48 legacy as it relates then to our project contracted backlog that carries through '28 should be unaffected by whatever comes out through the executive order.
But the opportunity is what are the catalysts going beyond that, and that is the new tech-neutral guidance, which will have some clarity around definition for commenced construction in FEOC. But assuming that those are all amenable and manageable by the market, then now we have a new window that we can continue to book out and see strong demand through 2029 into 2030, which we think is highly encouraging from that standpoint.
The next question today comes from Praneeth Satish, Wells Fargo.
Yes. So in terms of the bookings in July, it looks like it included Series 6 and re-contracted volumes, but it doesn't look like you've tapped into your 2027 and beyond U.S. Series 7 capacity yet. And so should we interpret that to mean that pricing in that $0.32 to $0.33 range just isn't compelling enough for you to commit your '27 to 2030 U.S. capacity?
I mean you mentioned you've got 1 gigawatt of bookings here in advanced stages. So kind of putting 2 and 2 together here, should we assume that at a minimum, you're trying to look for some price discovery above $0.32, $0.33? And maybe just as a follow-up to that, I mean, why even sell capacity at these levels? You've got the Section 232 polysilicon probe underway.
And if that's successful in its full intent, it could really boost pricing. So maybe if you could just kind of talk through that rationale.
Yes. So you're right. A good percentage of the bookings that we had in July were for S6 international. And really, even the bookings through the first half of the year, we had, call it, 1.2 gigawatts or something like that, and slightly less than half of it was international product.
And so as we think about, okay, how do we want to position the product and knowing the backdrop of everything that's going on around us and how do we ensure getting what we think is full entitlement for the product, what I like about some of the safe harbor -- so let me back up first. If I look at the Series 6 that we re-contracted, to me, that was a great transaction with a great price and to clear out the inventory that was largely sitting either in a warehouse or sitting in a port and incurring D&D charges because the customer defaulted on that obligation. So I wanted to get that inventory cleared as quickly as possible.
So this inventory, while it won't be deployed until 2026 with the customer, it is actually there taking ownership and it is going to their warehouse, and I'm not incurring any cost. And that's pretty important and pretty critical for us. We got to get the warehousing and D&D cost down in particular. The other thing I like about tethering in some safe harbor, taking some of the safe harbor volume that we did in July, is under the new 48E tech neutral, the safe harbor requirements in the tech-neutral, either investment tax credit or production tax credit, has to be done at the inverter level, okay?
Now once I committed to some percentage of a project, right? I am in a very strong position to capture the balance of that opportunity. So as you think about it right now, if we safe harbor 200 megawatts, if you kind of do the math, that potentially creates 2 to 3 gigawatts of opportunity of follow-on, right? Because it's going to be very difficult to take our technology at the inverter level and try to blend it with crystalline silicon.
We have different voltages and string lengths and everything else, it's very, very difficult and costly. So I'm looking at, look, if I can take some near-term safe harbor, seed those projects and then create a follow-on opportunity for the balance of that, that's a good thing for us to do. And I do fully take your comments about, yes, we very much are appreciative of the self-initiated 232 case and poly and the associated derivatives. So that obviously could be another catalyst for us.
So we're being very selective in that regard. But I do think what we did here near term with the bookings was to be very strategic. And I do like doing some safe harboring that allows me to be better positioned for follow-on volumes when those projects ultimately get built.
Philip Shen from ROTH Capital Partners has the next question.
A few here. Just as a follow-up on the pricing. The prior questioner talked about the 232. There's also what we've written about, which is the ramping UFLPA reinforcement. And so that's yet another potential catalyst.
So Mark, as you think through pricing, I mean, if international is at this $0.32 level, domestic content must be -- I mean I got to imagine high 30s is possible, so wondering if you can comment on that at all. And then how much inventory might be left in the warehouse? And then finally, as it relates to capacity expansion, now that we're past OBB and we have the strong FEOC rules, the 232 and the linear of catalysts that you have, to what degree are you starting to think about new capacity? What are the things that you need to see before you make that next announcement?
Look, on the last one in terms of what do I need to see, we kind of, I think, need to let all the dust settle and dust also includes kind of understanding what comes out with this executive order to see what implication it has. That I think is a piece of the puzzle that hopefully, we'll see here near term. Look, I think the thing I want to maybe make sure -- it was said in our prepared remarks, but I want to make sure it's clear as well. Our domestic supply and our contract for that domestic supply is pretty solid through 2028, okay?
So our levers for the domestic, discrete domestic, sits further out in the horizon, okay? But what we have supply for is with that -- I think I said in my prepared remarks, that domestic position that we have created is a strategic foothold, in my mind, to leverage our international volume as both Series 6 and Series 7, okay? And what we're looking to do, and I think we've alluded to this in the past because it ties back to your capacity expansion question, is to bring finishing capability into the U.S. So we can bring finishing capabilities into the U.S. for both Series 6 and for Series 7. And the other thing that, that does for us is we can get to market faster with new volume, which is great, but it helps mitigate the exposure to the tariffs because at these price points that we're seeing, you do the simple math, at a 25% tariff, the tariffs are pretty hefty.
The opportunity to bring it into the U.S. and to do that on a semi-finished product drops my declared value upon import to about 1/3 of that. So now I'm bringing it in and it cost to me, call it, $0.10, $0.11 kind of number versus something in the $0.30s, and therefore, my tariffs are much lower. The other thing that it does is it allows us to qualify for the manufacturing tax credit for assembly. So that's another lever that gets played into the math for the fundamental economics, and we alluded to the business case is very attractive to doing that.
And then what happens is I have the opportunity, because of the constructs that are put in place right now to determine domestic content requirements, I can actually blend some more international in with my domestic, and it allows that opportunity to be multiplied significantly in terms of its value lever. So there's lots that's in play in that regard, Phil. We're working through each one of those items. We're trying to triangulate, get our insights, understanding what direction we want to go.
But I've been telling our team that, "Hey, we've got to be ready for this." We've already been working through and identifying site selection. We've already are thinking through the transferring of tools and equipment. The nice thing about running Malaysia and Vietnam at lower capacity right now means there's excess tools that are available. That means we can go after those tools if the decision is that, as the rates have come with the announcement of the tariff rates, it really is going to be uneconomic with the continued import from those markets.
It's going to be more beneficial for us to bring in semi-finished product, do that here in the U.S., take advantage of the manufacturing tax credit environment. And then give a little bit more -- there will be some domestic content associated with that product, give some more value in that regard as well.
Phil, just one thing I'll add, in terms of what do we need to see, and Mark just touched on a little bit on the periphery there, is related to tariffs. Tariffs impact both how we might price our international fully finished products, but also as impactful as we think through if we do a finishing line, how do we source the early-stage product and bring it over? Is it coming from Malaysia, Vietnam? Just given, if you go back to our previous guide, we gave you 2 discrete scenarios because there was so much uncertainty around long-term tariff outcomes, would it be at that 10% or would it be at the more reciprocal rates?
We have updated that in our current guide to what we believe the current outlook is today. So clearly, we have some better visibility, but I'd say it's far from perfect. And even as we're putting the guide together, there was information that came out yesterday that could have potentially changed the view around India. So what do we still need to see?
We still need to have a bit more understanding of how the tariff regime is going to play out.
Next question is Moses Sutton, BNP Paribas.
If I look at the North America booking opportunity pipeline, so it's up 1 gigawatt, maybe 3 gigawatts if I gross up the 2 that you booked in July, Slide 7. How do we think of this? Because there's 70 gigawatts of North America booking opportunity. There's your stuff that's in contracted backlog and then there's like an industry that has a bunch of panels. If I add all that up, it almost looks like it's the whole industry's volume for the next few years.
So is there a signal there that we could even see that there's more coming into the pipeline? Or are you just seeing everything in the market already and that's reflected in that metric?
Moses, look, I think there's a lot going on right now. And we've had a number of inbounds that are very large. Now what I don't fully know -- I'll use an example of this. As I indicated, we had a customer who had a near-term need because their supplier, Chinese supplier, reneged on that deal, and they came to us.
And I've got others that are coming to us as well. And that particular customer is looking to do something even bigger than what we've done, meaningfully larger for us in '27 and '28. Again, that volume we sold to them this time around was for '26. What I don't know is that if others are getting -- and this particular customer is not one that we've actually sold to over the last several years. I don't know if they're all getting signaled the same way that the commitments they thought they had from their supply chain have now been reneged on and they're coming to First Solar. So our pipeline could be just a reallocation of demand that's already in the marketplace because of disruption to their supply chain or people pivoting away from what they had initially envisioned that they were going to do.
So I don't know. It's hard for me to determine if what I'm seeing -- because I've seen a handful of very large commitments. Some of it I think is more incremental. Some of it I do think is, I'll call it, put it in that hyperscaler bucket, AI related, it could be an incremental catalyst to maybe near-term visibility of market demand.
But I think there's many things that are adding up right now that are maybe influencing a bigger view of the market than it would be otherwise.
And everyone our final question today comes from Julien Dumoulin-Smith from Jefferies.
Julien Patrick Dumoulin-Smith: Team, if I can, just on the use of cash, right? Obviously, you found yourself in a nice position here coming into the back half of the year. You got this at least chunk of clarity coming out of OBBB. Pending tariff, how do you think about use of cash here? Again, obviously, you've got a final decision on the finishing line. You've now disclosed that you're moving forward on a perovskite line in Ohio. How do you think about the palatability, use of cash, the different decision trees and the time line for it? Again, pending tariffs seems to be a big consideration for your prior comments. But when and how do you think about it both in the R&D sense and as well as in shareholder returns?
Yes. Julien, I'd say we've shored up the liquidity position from where we were at the last call pretty meaningfully this year. I think I mentioned on the call, we were at a lower cash point than we've been historically, not something I was worried about necessarily, but we wanted to make sure we put more resilience in there, which is what we've done. We continue to expect that to get better over the year as we get back to somewhat of a more normalized working capital position across both AR and inventory.
So that's helpful. If you look at where we end the year, absent significant new investment, we're through a large amount of the CapEx cycle that we've been through over the last couple of years. So there's still will be some spend to finish up on the Louisiana side, although that's getting up and running now, some of the cash payments, the holdbacks will happen in 2026. As Mark mentioned, there's an opportunity around the finishing line. That will depend on if we're bringing back-end tools from Asia that exists today and repurposing them here.
Are we adding any new tools? Whether we lease a building, whether we buy a building, that will change the CapEx profile here as well. The perovskite line, the development line is up and running. If that goes well, there's opportunities to expand around that.
But in general, I would say, I'm viewing this year as, "Let's get through the year, let's figure out how we stand around tariffs," and as the dust settles on the executive order, we should have a lot more clarity going into Q3, Q4 of this year of what that longer-term position looks like. When you combine that with the clarity we had out of the OBBBA being passed, that's helpful for the longer- term view. The fundamental waterfall approach we have to cash hasn't changed. So we still look at core running the business, can we expand either new manufacturing sites or finishing lines?
Are we willing to spend more in R&D? And the answer recently has been yes, both internally and potentially looking at M&A around the R&D side. And then if we can't find accretive uses of cash through there, then we'll potentially look at how we return capital. So there's a lot more still, I think, to happen this year.
As Mark mentioned, there's still dust to settle around a lot of the policy. That's really very fresh. Once we have better clarity on that and we sense what so we're going through next year, we'll update you on the cash position, most likely as we go into the 2026 guide towards the end of the year or early next year.
And ladies and gentlemen, that does conclude our question-and-answer session. It also does conclude our conference for today. We would like to thank you all for your participation. You may now disconnect.