First Solar, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. First Solar manufactures and sells cadmium telluride (CdTe) solar modules and also operates a systems business. During the quarter it completed sales of its North American O&M operations and U.S. project development business.
Key financial results
| Metric | Q1 2021 | Q1 2020 | Change / context |
|---|---|---|---|
| Net sales | $803.4 million | $532.1 million | Up 51% |
| Gross profit | $184.8 million | $90.3 million | Gross margin 23.0%, versus 17.0% |
| Operating income | $252.3 million | $1.7 million | Includes $150.9 million gain on business sales |
| Net income | $209.7 million | $90.7 million | Diluted EPS $1.96, versus $0.85 |
| Operating cash flow | $(279.5) million | $(504.9) million | Cash used in both periods |
| Capital expenditures | $90.2 million | $112.5 million | Purchases of property, plant and equipment |
Sales growth reflected a 46% increase in module watts sold and sales of the Sun Streams 2, 4 and 5 projects. Module revenue rose 36% to $534.7 million; systems revenue rose 94% to $268.7 million. Module average selling price per watt declined 7%. Gross margin improved on higher-margin project sales and manufacturing throughput, partly offset by COVID-related manufacturing charges.
Reported operating income and net income were materially affected by the $150.9 million aggregate gain on sales: $119.2 million from North American O&M and $31.8 million from U.S. project development. The prior-year period included a substantial CARES Act-related tax benefit, making year-over-year net income comparisons less representative of underlying operations. The filing does not provide a single adjusted earnings measure excluding these items.
Liquidity, balance sheet and cash flow
- Cash, cash equivalents and marketable securities totaled $1.536 billion at March 31, 2021, down from $1.747 billion at year-end. Approximately $1.0 billion was held by foreign subsidiaries.
- Cash, cash equivalents and restricted cash were $1.234 billion at quarter-end. Operating cash use was partly offset by $271.8 million of investing cash inflows, including $146.0 million received for the O&M sale. Proceeds from the U.S. development-business transaction were received in early April.
- Total debt carrying value was $256.9 million, including $2.5 million current and $254.4 million long-term. The company had no revolver borrowings and reported $396.6 million of available capacity for letters of credit under the facility. The revolver matures in July 2022.
- Current assets were $3.137 billion and current liabilities $669.3 million. The quarter-end balance sheet also included $128.1 million of module collection and recycling liabilities and $94.1 million of product warranty liabilities.
- Management said available liquidity, operating cash flows, future module-sale contracts and the project pipeline should cover working capital, capital expenditure and systems investment needs for at least 12 months.
Material changes, outlook and commentary
- First Solar completed the North American O&M sale for a $151.5 million closing price, with $146.0 million received at closing. It also completed the U.S. project development sale to Leeward for an aggregate $284.0 million, including module sales and advance payments; transaction proceeds arrived in April.
- Commercial production began at the second Kulim, Malaysia Series 6 facility. Installed Series 6 nameplate capacity reached 7.9 GW DC; Q1 production was 1.7 GW DC, 32% above the prior-year quarter. Management expected 2021 Series 6 production of 7.4–7.6 GW DC.
- Management forecast 2021 capital expenditures of $425–$475 million. It reported customer contracts for 14.1 GW DC of future module sales at an aggregate transaction price of $4.1 billion, expected to be recognized through 2024, subject to contract amendments and delivery.
- The company cited intense solar pricing competition, industry capacity in excess of demand, potential pressure on module and system prices, supply and freight cost increases, COVID-19 effects, financing availability, and policy and regulatory changes. It also highlighted competition from higher-efficiency and bifacial crystalline-silicon modules.
- Key estimates and contingencies include system-contract cost and revenue estimates, warranties, tax positions, and recycling obligations. A 1 percentage-point increase in estimated module return rates would increase the warranty liability by $108.8 million; a 1% increase in the assumed annual inflation rate for recycling costs would increase that liability by $21.2 million.
- Remaining minimum purchases under glass supply agreements were estimated at $1.8 billion for substrate glass and $400 million for cover glass; aggregate termination penalties were up to $390 million. The company reported no material change to previously disclosed legal matters or risk factors.
Important facts for investors to verify
- How much of the quarter’s earnings improvement is sustainable after excluding business-sale gains and considering the prior-year CARES Act tax benefit.
- Whether module pricing, raw-material and freight costs, manufacturing throughput, and Series 6 production meet management’s expectations.
- Timing and collectability of the U.S. development-sale proceeds, module advance payments, and contracted module deliveries.
- Whether operating cash flow improves as receivables and project investment fluctuate, and whether forecast capital spending remains within the stated range.
- Exposure to warranty and recycling-cost assumptions, glass supply commitments, customer concentration, project financing, and changing solar-market policies.