01—Abstract
Summary
Summary of the 10-Q filed April 27, 2018. Cited figures are marked; the original filing is the authoritative source.
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.
02—Key points
Key Highlights
- Net income increased significantly to $82.95 million ($0.78/share) in Q1 2018 from $9.13 million ($0.09/share) in Q1 2017.
- Gross 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.
- Net 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.
- The 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).
- Capital 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.
- The 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2018, First Solar, Inc. kept $0.15.
- Revenue$567.3M100.0%
- Cost of revenue−$394.5M69.5%
- Gross profit$172.8M30.5%
- Operating costs−$98.5M17.4%
- Operating income$74.3M13.1%
- Interest, other & tax$8.7M1.5%
- Net income$83.0M14.6%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed April 27, 2018Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $567.26M$891.79M | −36.4% |
| Cost of Revenue | $394.47M$807.61M | −51.2% |
| Gross Profit | $172.80M$84.18M | +105.3% |
| R&D Expenses | $20.32M$22.80M | −10.9% |
| SG&A Expenses | $41.13M$48.20M | −14.7% |
| Operating Expenses | $98.53M$92.18M | +6.9% |
| Operating Income | $74.26M-$8.00M | +1028.9% |
| Interest Expense | $5.18M$9.17M | −43.5% |
| Net Income | $82.95M$9.13M | +808.7% |
| EPS (Basic) | $0.79$0.09 | +777.8% |
| EPS (Diluted) | $0.78$0.09 | +766.7% |
| Shares Outstanding (Basic) | 104.55M104.10M | +0.4% |
| Shares Outstanding (Diluted) | 106.31M104.41M | +1.8% |
05—Questions
Frequently Asked Questions
What drove the significant increase in First Solar's profitability in Q1 2018 compared to Q1 2017?
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.
Why did First Solar's net sales decrease significantly in Q1 2018?
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.
What impact is the transition to Series 6 manufacturing having on the company's financials?
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.
How is First Solar managing its significant investments in Series 6 manufacturing capacity while maintaining liquidity?
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.
06—Continue