First Solar, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts below are in U.S. dollars; statements are unaudited.
Business context and results
First Solar manufactures and sells cadmium telluride thin-film solar modules. Its Modules business is its sole reportable segment; residual operations include project development, O&M services, and owned solar power systems.
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $367.0 million | $803.4 million |
| Gross profit / margin | $11.5 million / 3.1% | $184.8 million / 23.0% |
| Operating income (loss) | $(57.8) million | $252.3 million |
| Net income (loss) | $(43.3) million | $209.7 million |
| Diluted EPS | $(0.41) | $1.96 |
| Net cash used in operating activities | $(138.8) million | $(279.5) million |
Module sales were $354.9 million, down 34%, as module volume sold fell 22% and average selling price per watt fell 15%. Other revenue was $12.2 million, versus $268.7 million, primarily reflecting U.S. project sales in the prior-year quarter.
Liquidity, debt, and balance sheet
- Cash and marketable securities totaled $1.55 billion at March 31, 2022, down from $1.83 billion at year-end 2021. Cash, cash equivalents, and restricted cash ended at $1.335 billion.
- Current assets were $2.995 billion and current liabilities were $735.0 million. Inventory was $1.079 billion, including $621.6 million of finished goods.
- Long-term debt had a $258.7 million principal balance ($252.1 million carrying value after discounts and issuance costs), versus $246.7 million principal at year-end. Debt is principally project financing for the Chilean Luz del Norte facility and a Japan construction loan.
- Investing cash flow was a $2.9 million use, including $154.8 million of property and equipment purchases, offset largely by marketable-security maturities and sales. Financing provided $5.8 million.
- Management said available cash, securities, operating cash flows, and customer contracts should meet working-capital, capital-expenditure, and project-investment needs for at least 12 months.
Material changes versus the prior period
- Revenue fell 54% and gross margin declined 19.9 percentage points. Management cited prior-year higher-margin project sales, lower module pricing, and increased freight costs; ongoing module cost reductions partly offset these pressures.
- The prior-year quarter included $150.9 million of gains on business sales, compared with $1.9 million in Q1 2022. The 2021 disposals included North American O&M and the U.S. project development business.
- SG&A declined 29% to $36.7 million, while R&D rose 36% to $27.1 million, primarily reflecting increased material and module testing costs.
- Operating cash use improved year over year, but cash and marketable securities declined, with investment in manufacturing equipment and projects contributing to the decrease.
Outlook, management commentary, and risks
- First Solar expected to produce 8.2–8.8 GW DC of Series 6 and Series 6 Plus modules in 2022; it reported 7.9 GW DC of installed Series 6 nameplate capacity and 2.1 GW DC produced in Q1.
- The company planned approximately $0.9–$1.1 billion of 2022 capital expenditures and approximately $1.4 billion of investment to add 6.6 GW DC of capacity through new U.S. and India facilities. The facilities were under construction and expected to begin operations in the first and second halves of 2023, respectively.
- Customer contracts covered 25.4 GW DC of future module sales at an aggregate transaction price of $6.9 billion, expected to be recognized through 2025. Potential technology-related price adjustments could add up to $0.3 billion; certain other price adjustments were excluded from the stated transaction price.
- Management said implementation of the CuRe technology program was delayed beyond 2022 due to manufacturing-performance challenges, pandemic-related travel restrictions, and prioritization of other roadmap work. Contract changes, price concessions, or module substitutions may be required.
- Risks highlighted include intense module-price competition and potential industry oversupply; higher freight, commodity, and input costs; supply-chain and shipping disruption; customer financing and policy uncertainty; and COVID-19-related operational delays.
- The company was evaluating strategic sale opportunities for its Luz del Norte solar plant; a change in expected ownership or use could trigger a material impairment. It also expected to complete a sale of its Japan project development and O&M businesses in the first half of 2022, subject to completion.
- A securities class action filed in January 2022 alleges misleading statements concerning Series 6 modules and the project development business. The company intends to defend the case; it said the early-stage matter could not yet be assessed for likelihood or loss range.
- Other notable exposures include up to $98.8 million of potential indemnification payments, partly supported by $28.2 million of insurance and other recovery instruments; $307 million of potential termination penalties under glass-supply agreements; and product warranty and module recycling obligations. No material change to previously disclosed risk factors was reported.
Important facts for investors to verify
- Whether module pricing, sales volumes, freight costs, and gross margins stabilize or continue to pressure profitability.
- Progress against 2022 production and capital-spending expectations, and the timing, cost, and ramp-up of the U.S. and India facilities.
- Delivery schedules and potential amendments to the $6.9 billion contracted sales portfolio, including whether contingent price adjustments are realized.
- CuRe program milestones and any customer contract concessions or substitutions.
- Completion and terms of the planned Japan business sale, and the outcome of the Luz del Norte strategic review and impairment assessment.
- Developments in the securities litigation, warranty and recycling estimates, and the company’s ability to manage supply-chain commitments and liquidity needs.