10-QPeriod: Q3 FY2022

FIRST SOLAR, INC. Quarterly Report for Q3 Ended Sep 30, 2022

Filed October 28, 2022For Securities:FSLR

Summary

FIRST SOLAR, INC. (FSLR) reported its third-quarter 2022 financial results, revealing a mixed financial performance. While net sales saw an increase of 8% year-over-year to $628.9 million, driven by higher module volumes, the company experienced a significant decline in gross profit margin. Gross profit decreased by 83% to $21.0 million, resulting in a gross margin of 3.3%, down from 21.4% in the prior year's comparable quarter. This margin compression was attributed to a decrease in average selling price per watt, increased logistics costs (freight, demurrage, detention), and a lower benefit from product warranty liability adjustments. Despite these challenges, First Solar continues to expand its manufacturing capacity, announcing plans for significant growth in the U.S. and India, supported by favorable legislation like the Inflation Reduction Act. The company ended the quarter with a solid cash position of $1.16 billion, but also faces ongoing legal proceedings and potential future liabilities.

Financial Highlights

55 data points
Beta

Revenue

$628.93M

3.3% Gross Margin

Net Income

-$49.17M

-7.8% Net Margin

EPS (Diluted)

$-0.46

Total Assets

$7.49B

Cash & Equivalents

$1.16B

Free Cash Flow

-$94.28M

Financial Statements
Beta
Revenue$628.93M
Cost of Revenue$607.95M
Gross Profit$20.98M
R&D Expenses$29.18M
SG&A Expenses$46.37M
Operating Expenses$95.32M
Operating Income-$68.35M
Interest Expense$2.99M
Net Income-$49.17M
EPS (Basic)$-0.46
EPS (Diluted)$-0.46
Shares Outstanding (Basic)106.60M
Shares Outstanding (Diluted)106.60M

Key Highlights

  • 1Net sales increased 8% year-over-year to $628.9 million, primarily due to a 23% increase in module volume sold, partially offset by a 10% decrease in average selling price per watt.
  • 2Gross profit declined significantly by 83% to $21.0 million, with gross margin compressing to 3.3% from 21.4% in Q3 2021. This was driven by lower average selling prices and higher logistics costs.
  • 3Manufacturing production increased by 18% year-over-year, with the company producing 2.4 GWDC of solar modules in the quarter.
  • 4The company announced plans to expand manufacturing capacity by an additional 4.4 GWDC in the U.S. and is on track to increase total capacity by 11 GWDC by 2025.
  • 5First Solar recognized a $5.98 million gain on sales of businesses in the quarter, primarily from the sale of international O&M operations.
  • 6The company reported a net loss of $49.2 million for the quarter, or $(0.46) per diluted share, compared to a net income of $45.2 million, or $0.42 per diluted share, in the prior year.
  • 7Cash, cash equivalents, and restricted cash remained strong at $1.16 billion as of September 30, 2022.

Frequently Asked Questions

The primary drivers for the significant decrease in gross profit margin were a lower average selling price per watt for solar modules, increased sales freight, demurrage, and detention charges, and a lower benefit from product warranty liability adjustments compared to the prior year period. These factors were partially offset by higher module volumes sold and continued module cost reductions.

First Solar is addressing increased costs and competition through several strategies. They are expanding manufacturing capacity significantly in the U.S. and India, focusing on R&D to improve module technology and efficiency, implementing cost reduction initiatives, and leveraging favorable government policies like the Inflation Reduction Act for domestic production. They are also structuring contracts to include adjustments for logistics costs and future technology improvements.

The Inflation Reduction Act (IRA) is expected to be significantly beneficial for First Solar. It provides tax incentives for solar modules manufactured in the U.S. (Section 45X), which First Solar expects to qualify for. The IRA is also anticipated to increase demand for domestic solar modules, potentially leading to localized supply chain constraints and inflationary pricing for certain raw materials, but overall, it's seen as a positive catalyst for U.S. manufacturing and demand for solar energy.

First Solar is currently involved in several legal proceedings, including a class action lawsuit and a derivative action, which they believe they have meritorious defenses against and intend to vigorously defend. The company is also engaged in an arbitration with Southern Power Company regarding EPC agreements and other customer indemnification demands. At this stage, the company cannot assess the likelihood or estimate the potential loss from these matters, but they are actively defending themselves.