10-QPeriod: Q2 FY2008

FIRST SOLAR, INC. Quarterly Report for Q2 Ended Jun 28, 2008

Filed July 31, 2008For Securities:FSLR

Summary

First Solar, Inc. reported strong growth in its second quarter and first half of 2008, driven by a significant increase in solar module sales volume. Net sales surged by 245.8% year-over-year for the quarter and 221.8% for the six-month period, largely attributed to the ramp-up of its Malaysian manufacturing facilities and increased production throughput. Gross profit also saw substantial improvement, growing by 410% quarterly and 326.3% semi-annually, with gross margin expanding significantly due to increased leverage of fixed costs and economies of scale from expanded production capacity. The company's expansion into Malaysia is progressing, with the first plant commencing production and subsequent plants expected to reach full capacity throughout 2009. Despite increased operating expenses related to this expansion and general growth, First Solar demonstrated robust profitability, with net income increasing substantially for both periods. The company ended the quarter with a strong cash position, indicating sufficient resources to meet its working capital and capital expenditure needs, though it notes the potential need for future debt or equity financings to support its growth strategy.

Financial Highlights

28 data points
Beta

Revenue

$267.04M

54.2% Gross Margin

Net Income

$69.67M

26.1% Net Margin

EPS (Diluted)

$0.85

Cash & Equivalents

$511.24M

Free Cash Flow

-$112.42M

Financial Statements
Beta
Revenue$267.04M
Cost of Revenue$122.34M
Gross Profit$144.70M
R&D Expenses$7.72M
SG&A Expenses$43.63M
Operating Expenses$55.97M
Operating Income$88.73M
Interest Expense$0
Net Income$69.67M
EPS (Basic)$0.87
EPS (Diluted)$0.85
Shares Outstanding (Basic)79.88M
Shares Outstanding (Diluted)82.00M

Key Highlights

  • 1Net sales dramatically increased by 245.8% year-over-year for the quarter to $267.0 million and by 221.8% for the first six months to $464.0 million.
  • 2Gross profit soared by 410.0% year-over-year for the quarter to $144.7 million and by 326.3% for the first six months to $249.0 million.
  • 3Gross margin improved significantly, expanding from 36.7% to 54.2% for the quarter and from 40.5% to 53.7% for the first six months.
  • 4Production commenced at the first Malaysian facility, contributing to a significant increase in module sales volume.
  • 5Operating expenses, including R&D, SG&A, and production start-up costs, increased significantly due to ongoing global expansion and infrastructure build-out.
  • 6The company maintained a strong liquidity position, with cash and cash equivalents and marketable securities totaling $661.2 million as of June 28, 2008.
  • 7Net income for the quarter was $69.7 million, a substantial increase from $44.4 million in the prior year period.

Frequently Asked Questions

The substantial increase in net sales was primarily driven by a significant rise in the volume of solar modules sold, fueled by the commencement of production at the first Malaysian manufacturing facility, the full ramp-up of the German facility, and overall improvements in production throughput. The average number of sellable watts per module and the average selling price also contributed positively.

The expansion into Malaysia is a key driver of growth. The commencement of production at the first Malaysian plant contributed to increased sales volume. However, it also led to higher operating expenses, including increased salaries, personnel costs, facility expenses, and significant production start-up costs associated with building new facilities and qualifying production lines.

First Solar believes its current cash, cash equivalents, marketable securities, and cash flow from operations will be sufficient to meet its needs for at least the next 12 months. However, the company acknowledges the potential need for future debt or equity financings to support its expansion strategy and may engage in such activities if financial results or operating plans change. Failure to secure financing on reasonable terms could hinder its expansion.

Given that a substantial portion of its net sales are denominated in Euros, First Solar has significant exposure to foreign exchange risk. The company uses derivative financial instruments, such as forward contracts, to hedge certain forecasted cash flows and balance sheet exposures denominated in Euros. The German plant's operating expenses being in Euros also provide a natural hedge.