10-QPeriod: Q2 FY2023

FIRST SOLAR, INC. Quarterly Report for Q2 Ended Jun 30, 2023

Filed July 27, 2023For Securities:FSLR

Summary

First Solar, Inc. (FSLR) reported a strong second quarter of 2023, demonstrating significant top-line growth and a substantial improvement in profitability. Net sales surged by 31% year-over-year, driven by both increased module volumes and higher average selling prices. This growth was accompanied by a dramatic turnaround in gross profit, which moved from a loss in the prior year's quarter to a healthy 38.3% margin. This improvement was largely attributable to the recognition of advanced manufacturing production credits under the Inflation Reduction Act (IRA), ongoing module cost reductions, and higher sales volumes. The company's strategic investments in R&D and manufacturing capacity expansion are progressing, with plans for significant capacity increases in the U.S. and India. Despite ongoing investments and some production start-up costs, First Solar's financial position remains solid, with ample liquidity to fund its operations and growth initiatives. The company's focus on technological innovation and cost competitiveness, coupled with favorable government policies, positions it well within the expanding renewable energy market.

Financial Highlights

53 data points
Beta

Revenue

$810.67M

38.3% Gross Margin

Net Income

$170.58M

21.0% Net Margin

EPS (Diluted)

$1.59

Total Assets

$9.00B

Cash & Equivalents

$844.60M

Free Cash Flow

-$472.37M

Financial Statements
Beta
Revenue$810.67M
Cost of Revenue$500.25M
Gross Profit$310.42M
R&D Expenses$36.74M
SG&A Expenses$46.33M
Operating Expenses$142.04M
Operating Income$168.51M
Interest Expense$1.42M
Net Income$170.58M
EPS (Basic)$1.60
EPS (Diluted)$1.59
Shares Outstanding (Basic)106.83M
Shares Outstanding (Diluted)107.28M

Key Highlights

  • 1Net sales increased 31% year-over-year to $810.7 million, driven by higher module volumes and average selling prices.
  • 2Gross profit margin improved significantly to 38.3% from a loss of (3.7)% in the prior year's quarter, primarily due to IRA manufacturing credits and cost reductions.
  • 3The company produced and sold 2.8 GW of solar modules in the quarter, with production capacity at 13 GW.
  • 4Significant investments are being made in manufacturing capacity expansion, with plans to add approximately 11.3 GW by 2026.
  • 5Research and development expenses increased by 46% year-over-year, reflecting continued investment in technology and product development.
  • 6A litigation loss of $35.6 million was recognized due to an arbitration award related to EPC agreements.
  • 7The company ended the quarter with $829.9 million in cash and cash equivalents, providing strong liquidity.

Frequently Asked Questions

The substantial improvement in profitability, particularly the jump in gross profit margin to 38.3%, was primarily driven by the recognition of advanced manufacturing production credits under the U.S. Inflation Reduction Act (IRA), ongoing module cost reductions, higher module sales volumes, and the prior period impairment of the Luz del Norte project. These factors more than offset increases in production start-up costs related to new manufacturing facilities.

First Solar is aggressively expanding its manufacturing capacity, with plans to add approximately 11.3 GW by 2026 through new facilities in the U.S. and India, and expansions at existing sites. The company expects to invest approximately $2.2 billion in these remaining expansion projects. This expansion is expected to be financed partly by advance payments from customers and the IRA manufacturing credits, which the company anticipates will provide a significant funding source over a 10-year period.

Yes, the company incurred a litigation loss of $35.6 million in the quarter due to an interim arbitration award from Southern Power Company related to EPC agreements. Additionally, the company is involved in other legal proceedings, including a derivative action and patent infringement claims, the outcomes of which are currently uncertain but the company believes will not have a material adverse effect. There was also a $51.3 million jury award in a personal injury lawsuit, which is expected to be covered by insurance.

The IRA is having a significant positive impact. The company expects to qualify for advanced manufacturing production credits under Section 45X of the IRC, which it anticipates will provide substantial financial benefits over 10 years. These credits are recognized as a reduction to Cost of Sales. The IRA is also expected to drive increased demand for domestically manufactured solar modules, benefiting First Solar's U.S. operations.