01—Abstract
Summary
Summary of the 10-Q filed October 25, 2019. Cited figures are marked; the original filing is the authoritative source.
First Solar, Inc. reported net sales of $546.8 milliona for the three months ended September 30, 2019, a decrease from $676.2 million in the same period of 2018.
This decline was primarily driven by project sales in the prior year and the completion of several projects. However, gross profit saw a significant improvement, increasing to 25.3%b from 19.1% year-over-year, largely attributed to a reduction in product warranty liability and improved manufacturing facility utilization. The company's balance sheet shows a decrease in cash and cash equivalents, reflecting investments in property, plant, and equipment, alongside operating expenditures for manufacturing transitions.
For the nine months ended September 30, 2019, net sales increased to $1.66 billionc from $1.55 billion in the prior year, driven by substantial growth in the modules segment. Conversely, the systems segment experienced a decline in net sales.
The company generated a net loss of $55.5 milliond for the nine-month period, compared to a net income of $92.2 million in the prior year, largely due to the impact of large project sales in 2018. Despite the net loss, the company maintains a strong focus on its module technology, capacity expansion, and cost reduction initiatives, anticipating sufficient liquidity for its near-term operational and investment needs.
02—Key points
Key Highlights
- Net sales for Q3 2019 decreased by 19% to $546.8 million compared to $676.2 million in Q3 2018, primarily due to project sales in the prior year and project completions.
- Gross profit margin improved significantly to 25.3% in Q3 2019 from 19.1% in Q3 2018, driven by reduced warranty liabilities and better manufacturing utilization.
- For the nine months ended September 30, 2019, net sales increased 7% to $1.66 billion, primarily due to a 107% increase in module segment sales.
- The company reported a net loss of $55.5 million for the nine months ended September 30, 2019, a reversal from a net income of $92.2 million in the comparable period of 2018.
- Cash, cash equivalents, and marketable securities decreased to $1.54 billion as of September 30, 2019, from $2.55 billion as of December 31, 2018, reflecting significant capital expenditures and operating expenses.
- First Solar announced a transition from an internal EPC service model in the U.S. to an external model, leveraging third-party EPC services.
- Production start-up expenses increased by 26% in Q3 2019, reflecting investments in new manufacturing facilities and production lines.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2019, First Solar, Inc. kept $0.06.
- Revenue$546.8M100.0%
- Cost of revenue−$408.4M74.7%
- Gross profit$138.4M25.3%
- Operating costs−$97.1M17.8%
- Operating income$41.3M7.6%
- Interest, other & tax−$10.7M2.0%
- Net income$30.6M5.6%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed October 25, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $546.81M$676.22M | −19.1% |
| Cost of Revenue | $408.44M$547.09M | −25.3% |
| Gross Profit | $138.36M$129.13M | +7.2% |
| R&D Expenses | $24.91M$22.39M | +11.3% |
| SG&A Expenses | $53.54M$33.54M | +59.6% |
| Operating Expenses | $97.06M$70.65M | +37.4% |
| Operating Income | $41.30M$58.48M | −29.4% |
| Interest Expense | $4.98M$3.20M | +55.6% |
| Net Income | $30.62M$57.75M | −47.0% |
| EPS (Basic) | $0.29$0.55 | −47.3% |
| EPS (Diluted) | $0.29$0.54 | −46.3% |
| Shares Outstanding (Basic) | 105.40M104.80M | +0.6% |
| Shares Outstanding (Diluted) | 106.23M106.16M | +0.1% |
05—Questions
Frequently Asked Questions
What caused the decrease in net sales in the third quarter of 2019?
The decrease in net sales for the three months ended September 30, 2019, to $546.8 million from $676.2 million in the prior year, was primarily due to the sale of the Manildra project in 2018 and the completion of substantially all construction activities at several projects in late 2018 and early 2019. This was partially offset by the sale of the Seabrook project and the completion of the Phoebe project in 2019, along with an increase in third-party module sales.
Why did the gross profit margin improve so significantly?
The gross profit margin increased to 25.3% in the third quarter of 2019 from 19.1% in the same period of 2018. This improvement was primarily driven by a significant reduction in the product warranty liability due to revised module return rates, higher gross profit on third-party module sales, and improved utilization of manufacturing facilities. These positive factors more than offset the impact of a less favorable mix of projects under construction.
What is the company's outlook on liquidity and its ability to fund operations and investments?
First Solar believes its current cash, cash equivalents, marketable securities, operating cash flows, future sales contracts, project pipeline, and credit facility availability are sufficient to meet its working capital, project investment, and capital expenditure needs for at least the next 12 months. The company expects to continue making significant capital investments related to its Series 6 module technology transition and new manufacturing facilities.
What is the impact of the company's transition to an external EPC service model in the U.S.?
In September 2019, First Solar announced its shift from an internal Engineering, Procurement, and Construction (EPC) service model in the U.S. to an external model. This change involves leveraging third-party EPC services for power plant solutions. The transition, expected to conclude by the end of 2019, aligns with the company's international model and is facilitated by its Series 6 module technology, which offers improved Balance of System (BoS) compatibility.
06—Continue