01—Abstract
Summary
Summary of the 10-Q filed November 3, 2016. Cited figures are marked; the original filing is the authoritative source.
First Solar, Inc. reported a significant year-over-year decline in net sales for the third quarter of 2016, down 46% to $688 milliona.
This was primarily driven by lower revenue from large construction projects like Desert Stateline and the completion of several key projects in late 2015 and early 2016. Gross profit also saw a substantial decrease, both in absolute terms and as a percentage of sales, falling to 27.1%b from 38.1% in the prior year's quarter. This was attributed to a less favorable project mix and the absence of a large beneficial adjustment to the module recycling liability that occurred in the prior year.
Despite the revenue and gross profit decline, the company's components business, which sells solar modules, saw a significant increase in revenue due to higher sales volumes, though this was partially offset by lower average selling prices. The company also reported an increase in R&D expenses, signaling continued investment in technology and efficiency improvements.
The company's balance sheet remains strong, with a substantial increase in cash and cash equivalents, partly due to borrowings under its revolving credit facility. Management highlighted continued focus on cost reduction and module technology advancements as key strategies moving forward.
02—Key points
Key Highlights
- Net sales decreased by 46% to $688 million for Q3 2016 compared to $1.3 billion in Q3 2015, primarily due to project completions and lower revenue from large construction projects.
- Gross profit margin declined to 27.1% in Q3 2016 from 38.1% in Q3 2015, impacted by project mix and the absence of a prior year favorable liability adjustment.
- Components business revenue increased significantly (250% quarter-over-quarter) due to a 290% increase in module volume sold, though average selling price per watt decreased by 10%.
- Restructuring and asset impairment charges of $89.8 million were recognized in the nine months ended September 30, 2016, primarily related to the decision to end crystalline silicon module production.
- Cash, cash equivalents, and marketable securities increased to $2.1 billion as of September 30, 2016, up from $1.8 billion at the end of 2015, driven by borrowings under the revolving credit facility.
- R&D expenses increased for both the three-month and nine-month periods, reflecting ongoing investment in technology, with average module conversion efficiency improving.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, First Solar, Inc. kept $0.22.
- Revenue$681.3M100.0%
- Cost of revenue−$510.4M74.9%
- Gross profit$170.9M25.1%
- Operating costs−$97.6M14.3%
- Operating income$73.3M10.8%
- Interest, other & tax$77.1M11.3%
- Net income$150.5M22.1%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed November 3, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $681.28M$1.27B | −46.4% |
| Cost of Revenue | $510.37M$786.88M | −35.1% |
| Gross Profit | $170.91M$484.37M | −64.7% |
| R&D Expenses | $32.17M$29.63M | +8.6% |
| SG&A Expenses | $60.34M$53.72M | +12.3% |
| Operating Expenses | $97.58M$86.54M | +12.8% |
| Operating Income | $73.32M$397.82M | −81.6% |
| Interest Expense | $5.56M$1.77M | +213.4% |
| Net Income | $150.46M$349.32M | −56.9% |
| EPS (Basic) | $1.46$3.46 | −57.8% |
| EPS (Diluted) | $1.45$3.41 | −57.5% |
| Shares Outstanding (Basic) | 103.34M100.91M | +2.4% |
| Shares Outstanding (Diluted) | 103.68M102.30M | +1.4% |
05—Questions
Frequently Asked Questions
What is the primary reason for the significant decrease in First Solar's net sales in the third quarter of 2016?
The primary reason for the significant decrease in net sales was the completion of several large solar projects in late 2015 and early 2016, such as the Desert Stateline and Silver State South projects, leading to lower revenue recognized from construction activities. Additionally, there was lower revenue from module plus transactions and a substantial decrease in revenue from the systems business.
How has First Solar's profitability been affected in this quarter?
Profitability has been impacted by a significant decrease in gross profit margin, which fell to 27.1% from 38.1% year-over-year. This was mainly due to a less favorable mix of projects being sold or under construction, coupled with the absence of a large favorable adjustment to the module collection and recycling obligation that occurred in the prior year's quarter.
What is the outlook for First Solar's components business (solar module sales)?
The components business showed strong growth, with revenue increasing significantly due to a substantial rise in the volume of modules sold to third parties. However, this growth was partially tempered by a decrease in the average selling price per watt, reflecting the competitive pricing environment in the solar module market.
What significant charges or impairments did First Solar incur during this reporting period?
First Solar incurred significant restructuring and asset impairment charges totaling $89.8 million in the nine months ended September 30, 2016. These charges were primarily related to the company's strategic decision to cease crystalline silicon module production and reallocate resources to its next-generation CdTe module offerings. This included impairments on manufacturing equipment, intangible assets, and goodwill.
06—Continue