01—Abstract
Summary
Summary of the 10-Q filed November 7, 2014. Cited figures are marked; the original filing is the authoritative source.
First Solar, Inc. reported a significant decrease in net sales for the third quarter and the first nine months of 2014 compared to the prior year, primarily driven by lower systems business project revenue and reduced third-party module sales.
Gross profit margins also declined due to a less favorable project mix and lower average selling prices. Despite the revenue challenges, the company maintained operational capacity with module production increasing slightly year-over-year, and average module efficiency improving. The company's balance sheet shows a substantial reduction in cash and cash equivalents, largely due to operating activities and investments, while long-term debt remained relatively stable.
The company's ongoing strategic focus remains on utility-scale PV generation solutions in sustainable geographic markets, with a substantial advanced-stage project pipeline. While the solar industry faces intense pricing competition, First Solar continues to emphasize its vertically integrated business model, cost competitiveness through proprietary technology, and efforts to reduce Balance of Systems (BoS) costs. The company is confident in its liquidity for the next 12 months, supported by existing cash, operational cash flows, and its revolving credit facility.
02—Key points
Key Highlights
- Net sales decreased 30% year-over-year for the third quarter of 2014 to $889.3 million, and decreased 6% for the first nine months to $2.38 billion.
- Gross profit margin declined to 21.3% for the third quarter of 2014 from 28.8% in the prior year, impacted by lower systems project revenue and reduced average selling prices.
- Cash and cash equivalents decreased significantly to $622.5 million as of September 30, 2014, from $1.32 billion at the end of 2013, primarily due to negative cash flow from operations.
- Research and development expenses increased 7% for the quarter and 14% for the nine months, reflecting ongoing investment in next-generation CdTe solar modules and technology.
- The company's advanced-stage project pipeline remains robust, totaling approximately 2.8 GW of projects sold/under contract and 1.4 GW of projects with executed PPAs but not yet sold/contracted.
- Despite revenue pressures, module production increased by 5% year-over-year in the third quarter, with average module conversion efficiency improving to 14.2%.
- Restructuring and asset impairment charges were minimal in the current period, a significant decrease from $57.3 million and $62.0 million recorded in the comparable periods of 2013.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2014, First Solar, Inc. kept $0.10.
- Revenue$890.3M100.0%
- Cost of revenue−$700.9M78.7%
- Gross profit$189.4M21.3%
- Operating costs−$105.5M11.9%
- Operating income$83.9M9.4%
- Interest, other & tax$6.0M0.7%
- Net income$89.8M10.1%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2014filed November 7, 2014Financial Statements
Q3 FY2014 against Q3 FY2013
| Line item | Q3 FY2014Q3 FY2013 | Change |
|---|---|---|
| Revenue | $890.29M$1.27B | −29.7% |
| Cost of Revenue | $700.89M$901.55M | −22.3% |
| Gross Profit | $189.40M$364.03M | −48.0% |
| R&D Expenses | $37.59M$34.98M | +7.5% |
| SG&A Expenses | $66.53M$63.87M | +4.2% |
| Operating Expenses | $105.53M$156.13M | −32.4% |
| Operating Income | $83.88M$207.90M | −59.7% |
| Interest Expense | $89K$275K | −67.6% |
| Net Income | $89.83M$195.04M | −53.9% |
| EPS (Basic) | $0.90$1.98 | −54.5% |
| EPS (Diluted) | $0.89$1.94 | −54.1% |
| Shares Outstanding (Basic) | 100.20M98.72M | +1.5% |
| Shares Outstanding (Diluted) | 101.42M100.38M | +1.0% |
05—Questions
Frequently Asked Questions
What was the primary driver for the decrease in net sales?
The decrease in net sales for both the third quarter and the first nine months of 2014 compared to the prior year was primarily attributed to lower systems business project revenue and a reduction in third-party module net sales. This was influenced by factors such as lower revenue from specific large projects, completion of other projects, and a decrease in the average selling price per watt along with lower volume for modules sold to third parties.
How has First Solar's profitability been affected?
Profitability, as measured by gross profit margin, has been negatively impacted. For the third quarter of 2014, the gross profit margin decreased to 21.3% from 28.8% in the prior year. This was mainly due to lower systems project revenue, a less favorable mix of projects sold and under construction, and an adjustment related to estimated recycling costs recorded in the prior year.
What is the company's liquidity position and outlook?
As of September 30, 2014, First Solar's cash, cash equivalents, and marketable securities stood at $1.12 billion, a decrease from $1.76 billion at the end of 2013. The company experienced a net decrease in cash and cash equivalents of $702.5 million during the first nine months of 2014, primarily due to cash used in operating activities. Despite this, the company believes its current cash position, cash flows from operations, and availability under its revolving credit facility are sufficient to meet its working capital and capital expenditure needs for at least the next 12 months.
What is the status of First Solar's major projects and future pipeline?
First Solar continues to execute on its advanced-stage utility-scale project pipeline. As of September 30, 2014, the company had approximately 2.8 GW of projects sold/under contract and 1.4 GW of projects with executed Power Purchase Agreements (PPAs) that were not yet sold or contracted. Revenue recognition for several large projects is nearing completion, while new projects are commencing construction. The company anticipates a substantial portion of its future net sales, operating income, and cash flows to be derived from these large projects.
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