10-QPeriod: Q1 FY2018

FIRST SOLAR, INC. Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 27, 2018For Securities:FSLR

Summary

First Solar, Inc. (FSLR) reported a significant rebound in profitability for the first quarter of 2018 compared to the same period in the prior year, driven by a strong increase in gross profit margin. Net sales, however, saw a notable decrease, largely attributed to the completion of large projects in the prior year and a strategic shift in sales focus. The company is actively transitioning to its next-generation Series 6 module manufacturing, which is reflected in increased production start-up expenses and capital expenditures, impacting operating cash flow negatively for the quarter. Despite the year-over-year decrease in net sales, the substantial improvement in gross profit margin indicates better operational efficiency and potentially more favorable project mix or pricing on recent sales. The company maintains a strong liquidity position with substantial cash and marketable securities, though it is deploying significant capital for its Series 6 transition and capacity expansion. Investors should monitor the execution of the Series 6 ramp-up and its impact on production costs and margins, as well as the ongoing competitive pressures in the solar market.

Financial Highlights

52 data points
Beta

Revenue

$567.26M

30.5% Gross Margin

Net Income

$82.95M

14.6% Net Margin

EPS (Diluted)

$0.78

Total Assets

$6.84B

Cash & Equivalents

$1.86B

Free Cash Flow

-$223.01M

Financial Statements
Beta
Revenue$567.26M
Cost of Revenue$394.47M
Gross Profit$172.80M
R&D Expenses$20.32M
SG&A Expenses$41.13M
Operating Expenses$98.53M
Operating Income$74.26M
Interest Expense$5.18M
Net Income$82.95M
EPS (Basic)$0.79
EPS (Diluted)$0.78
Shares Outstanding (Basic)104.55M
Shares Outstanding (Diluted)106.31M

Key Highlights

  • 1Net income increased significantly to $82.95 million ($0.78/share) in Q1 2018 from $9.13 million ($0.09/share) in Q1 2017.
  • 2Gross profit margin dramatically improved to 30.5% in Q1 2018, up from 9.4% in Q1 2017, largely due to a tax examination settlement and a favorable project mix.
  • 3Net sales decreased by 36% year-over-year to $567.3 million in Q1 2018, primarily due to the completion of large projects in the prior year.
  • 4The company is in the midst of transitioning to its next-generation Series 6 module manufacturing, incurring significant production start-up expenses ($37.1 million in Q1 2018).
  • 5Capital expenditures increased significantly, driven by investments in Series 6 manufacturing capacity, leading to a negative net cash flow from operations of $45.3 million in Q1 2018.
  • 6The company ended the quarter with a strong liquidity position, holding $1.86 billion in cash and cash equivalents and $1.02 billion in marketable securities.

Frequently Asked Questions

The substantial increase in profitability was primarily driven by a dramatic improvement in gross profit margin. This margin expansion was significantly influenced by the settlement of a tax examination with the state of California, which positively impacted revenue estimates, and a mix of higher gross profit projects sold during the period. Additionally, the decrease in cost of sales as a percentage of net sales, particularly in the systems segment, also contributed.

The decrease in net sales was primarily due to the completion of large projects in the prior year, notably the sale of the Moapa project in Q1 2017. While sales of modules to third parties increased, the overall decline in the systems segment, which is a larger contributor to revenue, more than offset this. The company's strategic focus and project pipeline timing also played a role.

The transition to Series 6 manufacturing is a significant focus, leading to increased capital expenditures for new capacity and equipment. This transition is also reflected in higher production start-up expenses as new lines are qualified and ramped up. While these investments are crucial for future cost competitiveness and technological advancement, they contributed to a negative net cash flow from operating activities in Q1 2018.

First Solar maintains a strong liquidity position with substantial cash, cash equivalents, and marketable securities. The company is also utilizing its revolving credit facility and has access to capital markets. The significant capital expenditures for Series 6 are planned and budgeted for, and the company believes its current resources and future cash flows will be sufficient to meet its obligations, although it continuously monitors its liquidity needs and may pursue additional financing if necessary.