First Solar, Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; filed February 25, 2021. The filing also reports unaudited fourth-quarter results. First Solar manufactures thin-film cadmium telluride (CdTe) solar modules and operates a systems business that develops, constructs, sells, and services solar projects.
Financial performance and liquidity
| Metric | FY2020 | FY2019 | Change |
|---|---|---|---|
| Net sales | $2.711 billion | $3.063 billion | Down 11% |
| Gross profit / margin | $680.7 million / 25.1% | $549.2 million / 17.9% | Margin up 7.2 percentage points |
| Operating income (loss) | $317.5 million | $(161.8) million | Improved |
| Net income (loss) | $398.4 million | $(114.9) million | Improved |
| Operating cash flow | $37.1 million | $174.2 million | Down |
| Capital expenditures | $416.6 million | $668.7 million | Down |
- Fourth quarter: Revenue was $609.2 million versus $1.399 billion in Q4 2019; gross profit was $159.9 million versus $333.6 million. Operating income was $57.8 million versus an operating loss of $117.9 million, and net income was $115.7 million versus a net loss of $59.4 million.
- Segments: Modules revenue increased 19% to $1.736 billion, reflecting 21% higher sales volume partly offset by a 2% lower average selling price per watt. Systems revenue decreased 39% to $975.3 million, primarily due to project construction and sales timing.
- Cash and debt: Cash, cash equivalents, and marketable securities totaled $1.747 billion at year-end, down from $2.164 billion. Long-term debt had a $279.2 million carrying value ($287.1 million principal); no Revolving Credit Facility borrowings were outstanding. Total assets were $7.109 billion and stockholders’ equity was $5.521 billion.
- Cash generation: Operating, investing, and financing cash flows were $37.1 million, $(131.2) million, and $(82.6) million, respectively. Cash and cash equivalents alone were $1.227 billion.
- Profit-quality considerations: FY2020 net income included a $107.3 million income tax benefit, including an $89.7 million CARES Act-related benefit. Operating results also reflected a $19.7 million reduction in warranty liability and an $18.9 million reduction in the recycling liability; manufacturing equipment impairment was $17.4 million.
Material changes and unusual items
- Gross-margin improvement reflected stronger third-party module sales and higher Series 6 manufacturing throughput. Module production rose 59% to 6.1 GW DC; installed Series 6 nameplate capacity was 6.3 GW DC at year-end.
- FY2020 operating cash flow was affected by payment of the $350 million securities class-action settlement and timing of customer receipts. The company also paid $19 million to settle an opt-out action, recording an additional $6 million litigation loss in 2020. Both settlements were made without admission of liability.
- First Solar agreed to sell its North American O&M operations to Clairvest and, in January 2021, its U.S. project development business to OMERS. Both transactions were expected to close in the first half of 2021, subject to conditions. The OMERS transaction includes an approximately 10 GW AC project pipeline and module purchase commitments; the filing does not provide a sale price in the supplied text.
Outlook, management commentary, and risks
- Management expected 2021 Series 6 production of 7.4–7.6 GW DC and capital expenditures of $425–$475 million. It stated that available liquidity, operating cash flows, customer contracts, and the project pipeline should cover needs for at least 12 months.
- As of year-end, contracts covered future sales of 10.7 GW DC of modules for an aggregate transaction price of $3.3 billion, expected to be recognized through 2023; contracts may be amended. Management cited plans to continue manufacturing investment and module technology and cost improvements.
- Key risks include persistent module oversupply and price competition, customer and geographic concentration, dependence on incentives and project financing, trade-policy changes, limited-source CdTe and other inputs, manufacturing execution and technology competition, and COVID-19 disruption. The company reported limited manufacturing impact from COVID-19 at the filing date but warned conditions could change.
- Long-duration obligations and estimates warrant attention: the recycling liability was $130.7 million and product warranty liability was $95.1 million. Management estimates future costs and claims; a 1% increase in assumed module return rates would raise the warranty liability by $104.9 million, while a 1% increase in recycling-cost inflation would raise the recycling liability by $21.6 million.
- The company reported effective disclosure controls and internal control over financial reporting. The auditor identified recycling and warranty liabilities as critical audit matters, emphasizing estimation uncertainty rather than modifying its opinion.
Investor facts to verify
- How much of the $398.4 million net income reflects recurring operations versus the tax benefit and liability-estimate changes?
- Whether the Clairvest and OMERS sales closed as expected, on what terms, and how they affect future revenue, margins, and cash flows.
- Whether 2021 production and capital expenditure expectations were achieved, and whether module pricing and margins remained resilient.
- Conversion and collection of the $3.3 billion contracted module backlog, including any amendments, customer concentration, or delivery risks.
- Assumptions and subsequent developments affecting warranty claims, recycling costs, supplier availability, and the company’s relatively low operating cash flow in 2020.