10-QPeriod: Q2 FY2018

FIRST SOLAR, INC. Quarterly Report for Q2 Ended Jun 30, 2018

Filed July 27, 2018For Securities:FSLR

Summary

First Solar, Inc. (FSLR) reported a significant decline in net sales for the three months ended June 30, 2018, down 50% year-over-year to $309.3 million. This was driven by lower module sales and the absence of large project sales recorded in the prior year period. Consequently, the company reported a gross loss of $8.1 million, a stark contrast to the gross profit of $110.9 million in the same period last year. This gross loss was attributed to higher under-utilization charges related to the ramp-up of new Series 6 manufacturing lines and a less favorable sales mix. Despite the revenue and profitability challenges in the quarter, the company maintained a strong liquidity position with $3.1 billion in cash, cash equivalents, and marketable securities as of June 30, 2018. The company also highlighted progress in its transition to Series 6 module manufacturing, commencing commercial production at its Ohio facility and beginning the process in Malaysia and Vietnam. The company reaffirmed its expectation that its current resources will be sufficient to meet its needs for at least the next 12 months.

Financial Highlights

52 data points
Beta

Revenue

$309.32M

-2.6% Gross Margin

Net Income

-$48.49M

-15.7% Net Margin

EPS (Diluted)

$-0.46

Total Assets

$7.03B

Cash & Equivalents

$2.02B

Free Cash Flow

-$65.76M

Financial Statements
Beta
Revenue$309.32M
Cost of Revenue$317.38M
Gross Profit-$8.06M
R&D Expenses$20.37M
SG&A Expenses$50.85M
Operating Expenses$95.58M
Operating Income-$103.63M
Interest Expense$6.07M
Net Income-$48.49M
EPS (Basic)$-0.46
EPS (Diluted)$-0.46
Shares Outstanding (Basic)104.78M
Shares Outstanding (Diluted)104.78M

Key Highlights

  • 1Net sales decreased by 50% to $309.3 million in Q2 2018 compared to $623.3 million in Q2 2017, primarily due to lower module sales and the absence of significant project sales from the prior year.
  • 2The company reported a gross loss of $8.1 million for Q2 2018, a significant deterioration from a gross profit of $110.9 million in Q2 2017, driven by manufacturing under-utilization charges and unfavorable product mix.
  • 3Net loss for Q2 2018 was $(48.5) million, or $(0.46) per share, a shift from a net income of $52.0 million, or $0.50 per share, in the prior year quarter.
  • 4Cash, cash equivalents, and marketable securities remained strong at $3.1 billion as of June 30, 2018.
  • 5Commercial production of Series 6 modules commenced in Ohio, with similar launches expected in Malaysia and Vietnam later in 2018, indicating progress in manufacturing transition.
  • 6The company's advanced-stage project pipeline remained substantial, with projects under sales agreements and projects with executed PPAs, totaling approximately 2.6 GW.

Frequently Asked Questions

The significant decrease in net sales was primarily due to lower third-party module sales and the absence of large project sales that were recognized in the second quarter of 2017. The shift to a gross loss was attributed to higher under-utilization charges associated with the ramp-up of new Series 6 manufacturing lines, a less favorable mix of projects sold or under construction, and reductions in average selling prices per watt for modules sold directly to third parties.

First Solar maintained a strong liquidity position with $3.1 billion in cash, cash equivalents, and marketable securities as of June 30, 2018. The company believes its current resources, cash flows from operations, project pipeline, and credit facility availability are sufficient to meet its needs for at least the next 12 months. Significant capital investments are planned for the transition to Series 6 module manufacturing.

First Solar has made progress on its Series 6 module manufacturing transition. Commercial production commenced in Ohio in April 2018. Internal qualification procedures were completed in Malaysia in June 2018, with commercial production expected to begin in July 2018. Commercial production is also expected to commence in Vietnam later in 2018.

Key risks include intense competition in the solar industry leading to price pressure on modules and Power Purchase Agreements (PPAs), potential inability to secure favorable long-term contracts, counterparty credit risk for PPAs, and challenges related to the ongoing upgrade of their enterprise resource planning (ERP) system, which could lead to increased costs and business disruptions.