First Solar, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited interim results. First Solar manufactures and sells cadmium telluride solar modules and, in selected markets, develops and provides services for utility-scale solar projects. In March 2021, it sold its North American O&M operations and U.S. project development business.
Financial results
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $583.5 million | $927.6 million | $2.016 billion | $2.102 billion |
| Gross profit / margin | $124.6 million / 21.4% | $293.0 million / 31.6% | $483.5 million / 24.0% | $520.8 million / 24.8% |
| Operating income | $50.9 million | $207.2 million | $413.6 million | $259.7 million |
| Net income | $45.2 million | $155.0 million | $337.3 million | $282.7 million |
| Diluted earnings per share | $0.42 | $1.45 | $3.16 | $2.65 |
- Q3 sales fell 37%; module sales rose 33% to $562.8 million as watts sold increased 51%, but systems sales fell 96% after substantial project sales in the prior-year quarter. Module average selling price per watt declined 12%.
- Q3 gross margin contracted 10.2 percentage points. Management cited prior-year higher-margin project sales, lower module pricing, higher logistics costs, and a higher recycling liability, partly offset by cost reductions and a $33.1 million warranty-liability estimate reduction.
- Nine-month sales declined 4%, while net income increased. Results included a $147.3 million net gain on business sales; nine-month systems revenue also included $65.1 million from a project indemnification settlement. These items affect comparability with 2020.
- Nine-month diluted EPS was $3.16 versus $2.65. The prior-year tax result included a discrete CARES Act benefit; the 2021 effective tax rate was 16.7%, compared with negative 16.9% in 2020.
Cash, liquidity and debt
- Cash, cash equivalents and marketable securities totaled $1.922 billion at September 30, 2021, up from $1.747 billion at year-end 2020. About $0.7 billion was held by foreign subsidiaries. Separately, restricted marketable securities were $251.4 million.
- Nine-month operating cash flow was $203.1 million, versus cash used of $149.2 million in 2020. Investing activities used $83.3 million, including $345.4 million of property and equipment purchases; financing activities used $9.2 million.
- Long-term debt, including current maturities, had $287.2 million principal outstanding and $278.6 million carrying value. The $500 million undrawn revolving credit facility was terminated in June 2021; outstanding letters of credit were transferred to a bilateral facility.
- Current assets were $3.046 billion and current liabilities $715.2 million. Management said available liquidity, operating cash flows, module contracts and project pipeline should meet needs for at least 12 months.
Outlook, commentary and key risks
- Management expected 2021 Series 6 production of 7.6–7.8 GW DC; Q3 production was 2.0 GW DC. Planned capacity additions of 6.6 GW DC—an Ohio facility and a first facility in India—were expected to begin operations in the first and second halves of 2023, respectively. The planned investment was approximately $1.3 billion.
- 2021 capital expenditure expectation was $675–725 million. The filing does not provide a clear full-year revenue or earnings forecast.
- As of September 30, customer contracts covered 16.4 GW DC of future module sales for an aggregate transaction price of $4.6 billion, expected to be recognized through 2024, subject to possible contract amendments.
- The CuRe technology rollout was delayed from late 2021 to early 2022 for lead-line implementation. Contract amendments and module substitutions may require price concessions; management estimated potential 2022 revenue concessions would not exceed approximately $100 million, while warning further challenges could raise the amount.
- Risks include intense module and systems pricing competition, falling module selling prices, elevated freight and supply-chain costs, raw-material availability, COVID-19-related disruption, policy and subsidy changes, financing and offtaker risks, and execution of manufacturing and technology plans. Management noted that global spot module prices had recently risen amid commodity and freight pressures, but expected long-term average selling prices to continue declining.
- A possible strategic sale of the Luz del Norte plant could lead to a material impairment if expected use or recoverability changes. The company also recorded a $10.8 million increase in its module recycling liability during Q3; a 10% increase in expected future recycling costs would add $14.0 million to that liability.
- Warranty estimates were reduced by $33.1 million in Q3. The filing estimates a 1% increase in module return rates across all technology series would increase the warranty liability by $112.2 million. Indemnifications had a maximum potential future payment exposure of $101.8 million, partly offset by up to $28.2 million of insurance and other recovery instruments.
- In October 2021, the company received a waiver for technical noncompliance with the Luz del Norte credit facilities as of September 30.
Important facts for investors to verify
- Whether module pricing, logistics costs and manufacturing cost reductions support recovery in gross margins.
- Progress on CuRe implementation, customer contract amendments and potential 2022 concessions.
- Actual capital spending, financing and construction progress for the Ohio and India factories.
- Conversion and timing of the $4.6 billion contracted module sales and the systems project pipeline into revenue and cash.
- Updates to warranty and recycling assumptions, Luz del Norte impairment risk, and the credit-facility waiver.