10-QPeriod: Q2 FY2017

FIRST SOLAR, INC. Quarterly Report for Q2 Ended Jun 30, 2017

Filed July 28, 2017For Securities:FSLR

Summary

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 million, 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 billion, 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.

Financial Highlights

52 data points
Beta

Revenue

$623.33M

17.8% Gross Margin

Net Income

$51.96M

8.3% Net Margin

EPS (Diluted)

$0.50

Total Assets

$6.68B

Cash & Equivalents

$1.51B

Free Cash Flow

-$272.31M

Financial Statements
Beta
Revenue$623.33M
Cost of Revenue$512.43M
Gross Profit$110.89M
R&D Expenses$21.34M
SG&A Expenses$48.96M
Operating Expenses$96.97M
Operating Income$13.93M
Interest Expense$6.37M
Net Income$51.96M
EPS (Basic)$0.50
EPS (Diluted)$0.50
Shares Outstanding (Basic)104.34M
Shares Outstanding (Diluted)104.61M

Key Highlights

  • 1Net sales decreased 39% year-over-year to $623.3 million due to project completions and manufacturing transition.
  • 2Gross profit margin remained stable at 17.8%, slightly down from 17.9% in the prior year period.
  • 3Significant restructuring and asset impairment charges of $18.3 million were incurred related to the Series 6 module manufacturing transition.
  • 4Net cash provided by operating activities significantly increased to $325.3 million from $22.6 million year-over-year.
  • 5Company ended the quarter with $2.2 billion in cash, cash equivalents, and marketable securities.
  • 6Average module conversion efficiency improved to 16.9% compared to 16.2% in the prior year.
  • 7First Solar is exploring strategic alternatives for its interest in 8point3 Energy Partners LP.

Frequently Asked Questions

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.

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.

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.

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.