10-QPeriod: Q1 FY2007

FIRST SOLAR, INC. Quarterly Report for Q1 Ended Mar 31, 2007

Filed May 8, 2007For Securities:FSLR

Summary

First Solar, Inc. reported a significant turnaround in its financial performance for the first quarter ended March 31, 2007, compared to the same period in the prior year. Net sales surged by 391% to $66.9 million, driven by a substantial increase in the volume of solar modules sold due to expanded production capacity. This top-line growth, coupled with improved operational efficiencies, led to a healthy gross margin of 44.9% and a net income of $5.0 million, a stark contrast to the net loss of $5.9 million in the prior year. The company is in a rapid expansion phase, with new manufacturing facilities in Germany and Malaysia under construction. While significant investments in property, plant, and equipment are being made to support this growth, the company's cash position remains strong at $325 million, supported by operating cash flows and previous financing activities, including its IPO in late 2006. Management believes current resources are sufficient for the next 12 months but acknowledges the potential need for future financing to execute its expansion strategy.

Key Highlights

  • 1Net sales increased by 391% to $66.9 million for the quarter ended March 31, 2007, compared to $13.6 million in the prior year's quarter.
  • 2Gross profit significantly improved, growing by 818% to $30.0 million, with gross margin expanding from 24.0% to 44.9%.
  • 3The company achieved a net income of $5.0 million for the quarter, a substantial improvement from a net loss of $5.9 million in the prior year's quarter.
  • 4Cash and cash equivalents stood at $325 million as of March 31, 2007, an increase from $308 million at the end of 2006.
  • 5Capital expenditures increased to $40.8 million in the quarter, primarily for the construction of new plants in Germany and Malaysia.
  • 6Despite robust sales growth, the company continues to invest heavily in R&D and production start-up activities, with these expenses increasing by 101% and 229% respectively.
  • 7Sales are heavily concentrated in Germany, with almost all net sales from solar modules sold to developers and system integrators in that region.

Frequently Asked Questions

First Solar's revenue growth is primarily driven by a significant increase in the volume of solar modules sold. This expansion in sales volume is a direct result of increased production capacity from the ramp-up of additional production lines at their Ohio plant and ongoing expansion into new manufacturing facilities in Germany and Malaysia.

The company has seen a dramatic improvement in profitability. Gross profit increased by 818% and the gross margin expanded significantly due to increased sales volume and better absorption of fixed costs. This translated into a net income of $5.0 million for the quarter, compared to a net loss in the same period last year.

First Solar is heavily investing in expanding its manufacturing capabilities, with capital expenditures rising to support the construction of new plants in Germany and Malaysia. The company ended the quarter with a strong cash position of $325 million and positive operating cash flow. Management believes it has sufficient resources for the next 12 months but may seek additional financing for its long-term expansion strategy.

Key risks include a high concentration of sales in Germany and potential negative impacts from changes in European subsidy programs. Additionally, the company is exposed to foreign currency exchange rate fluctuations, particularly between the US dollar and the Euro, as most of its sales are denominated in Euros. Interest rate fluctuations also pose a risk as many end-users rely on financing for system purchases.