01—Abstract
Summary
Summary of the 10-Q filed July 28, 2017. Cited figures are marked; the original filing is the authoritative source.
First Solar, Inc. reported a significant year-over-year revenue decline in the second quarter of 2017, primarily driven by the completion of major projects in the prior year and a strategic shift in manufacturing towards their next-generation Series 6 modules.
While net sales decreased by 39% to $623.3 milliona, gross profit margin remained relatively stable at 17.8%. The company's strategic pivot to Series 6 manufacturing involved significant restructuring and asset impairment charges, impacting profitability. However, the company also saw a substantial increase in net cash provided by operating activities, largely due to project sales and strong management of working capital.
The company ended the quarter with a robust cash and marketable securities balance of $2.2 billionb, indicating continued financial stability despite the revenue contraction and ongoing manufacturing transition. Key operational developments include the continued ramp-down of Series 4 module production and the ongoing transition to Series 6 manufacturing, which is expected to improve cost structure and product attributes.
First Solar also announced it was exploring strategic alternatives for its stake in 8point3 Energy Partners LP. Despite market pressures of intense pricing competition and potential policy uncertainties, the company remains focused on its long-term strategy of providing utility-scale PV solar energy solutions and maintaining cost leadership through technological innovation.
02—Key points
Key Highlights
- Net sales decreased 39% year-over-year to $623.3 million due to project completions and manufacturing transition.
- Gross profit margin remained stable at 17.8%, slightly down from 17.9% in the prior year period.
- Significant restructuring and asset impairment charges of $18.3 million were incurred related to the Series 6 module manufacturing transition.
- Net cash provided by operating activities significantly increased to $325.3 million from $22.6 million year-over-year.
- Company ended the quarter with $2.2 billion in cash, cash equivalents, and marketable securities.
- Average module conversion efficiency improved to 16.9% compared to 16.2% in the prior year.
- First Solar is exploring strategic alternatives for its interest in 8point3 Energy Partners LP.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2017, First Solar, Inc. kept $0.08.
- Revenue$623.3M100.0%
- Cost of revenue−$512.4M82.2%
- Gross profit$110.9M17.8%
- Operating costs−$97.0M15.6%
- Operating income$13.9M2.2%
- Interest, other & tax$38.0M6.1%
- Net income$52.0M8.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2017filed July 28, 2017Financial Statements
Q2 FY2017 against Q2 FY2016
| Line item | Q2 FY2017Q2 FY2016 | Change |
|---|---|---|
| Revenue | $623.33M$1.02B | −38.7% |
| Cost of Revenue | $512.43M$834.37M | −38.6% |
| Gross Profit | $110.89M$182.05M | −39.1% |
| R&D Expenses | $21.34M$32.93M | −35.2% |
| SG&A Expenses | $48.96M$63.78M | −23.2% |
| Operating Expenses | $96.97M$182.29M | −46.8% |
| Operating Income | $13.93M-$243K | +5831.7% |
| Interest Expense | $6.37M$7.15M | −10.9% |
| Net Income | $51.96M-$11.41M | +555.2% |
| EPS (Basic) | $0.50$-0.11 | +554.5% |
| EPS (Diluted) | $0.50$-0.11 | +554.5% |
| Shares Outstanding (Basic) | 104.34M102.29M | +2.0% |
| Shares Outstanding (Diluted) | 104.61M102.29M | +2.3% |
05—Questions
Frequently Asked Questions
What is the primary reason for the significant year-over-year decrease in net sales?
The substantial decrease in net sales was primarily due to the completion of major solar power system projects (such as Desert Stateline, Kingbird, Butler, Taylor, Astoria, and East Pecos) in 2016, as well as the ongoing transition of manufacturing operations to the next-generation Series 6 modules, which involves a ramp-down of older module production lines.
How is First Solar managing the transition to Series 6 manufacturing, and what are the associated costs?
First Solar is phasing out Series 4 module production and investing in Series 6 manufacturing capabilities. This transition involves capital expenditures for new equipment and infrastructure, expected to be around $1.1 billion for approximately 4 GW of annual capacity. The company incurred $18.3 million in restructuring and asset impairment charges in Q2 2017 related to this transition, primarily for equipment disposition, severance, and contract terminations. Further charges up to $15 million are anticipated in 2017.
What is the company's cash position and outlook for liquidity?
First Solar maintained a strong liquidity position with $2.2 billion in cash, cash equivalents, and marketable securities as of June 30, 2017. The company believes its current cash, cash equivalents, marketable securities, operating cash flows, and access to its revolving credit facility are sufficient to meet its working capital and investment needs for at least the next 12 months. Net cash provided by operating activities also saw a significant increase year-over-year.
How is the competitive landscape and market pricing affecting First Solar's performance?
The solar industry is characterized by intense pricing competition at both module and system levels, leading to declining average selling prices. First Solar, while emphasizing its cost competitiveness through its thin-film technology and operational efficiency, acknowledges that this pricing pressure can constrain profitability. The company is focusing on technological improvements and cost reductions, including the Series 6 transition, to maintain its competitive edge.
06—Continue