First Solar, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. First Solar designs, manufactures, and sells cadmium telluride thin-film solar modules; its residual operations include project development, systems, and O&M services. Amounts below are in U.S. dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $548.3 million | $367.0 million |
| Gross profit / margin | $112.1 million / 20.4% | $11.5 million / 3.1% |
| Operating income (loss) | $18.0 million | $(57.8) million |
| Net income (loss) | $42.6 million; $0.40 diluted EPS | $(43.3) million; $(0.41) diluted EPS |
| Operating cash flow | $(34.6) million | $(138.8) million |
- Balance sheet at March 31: Cash and cash equivalents of $906.6 million and marketable securities of $1.365 billion, totaling $2.271 billion, versus $2.578 billion at December 31, 2022. Current assets were $3.620 billion and current liabilities $1.174 billion.
- Debt: Long-term debt carrying value was $320.4 million, up from $184.3 million at year-end, primarily reflecting additional borrowing under the India Credit Facility. The facility supports construction of a planned 3.3 GW India plant; $321 million was outstanding before issuance costs.
- Cash investment: Investing cash outflow was $645.2 million, including $371.0 million of property, plant and equipment purchases. Financing provided $107.7 million, including $136.0 million of net long-term borrowings.
Material changes and operating developments
- Sales increased 49%, primarily because module sales volume rose 51%. Modules generated $536.6 million of sales; the “Other” segment generated $11.7 million.
- Gross margin rose 17.3 percentage points. Management attributed the improvement to the initial Section 45X advanced manufacturing production credit, continued module cost reductions, and greater sales volume, partly offset by under-utilization costs during the Series 7 Ohio ramp.
- First Solar recognized $70.1 million of Section 45X benefits as a reduction to cost of sales. The company expects an approximate $0.17-per-watt credit for qualifying U.S.-made modules sold to third parties, subject to applicable law and guidance.
- Interest income increased to $25.8 million from $2.3 million, primarily reflecting higher interest rates and average marketable securities balances. Foreign currency losses were $5.9 million, compared with $4.2 million.
- Commercial production began at the third Ohio facility for Series 7 modules. Installed nameplate capacity across Series 6 and Series 7 facilities was approximately 13 GW DC; Series 6 utilization was 98%.
Outlook, risks, and contingencies
- 2023 operating outlook: Management expects to produce 11.5–12.2 GW DC and sell 11.8–12.3 GW DC of modules. Planned 2023 capital expenditures are $1.9–$2.1 billion.
- Expansion: Approximately 7.7 GW DC of additional capacity is in development, including the first India facility, expected to begin operations in the second half of 2023, and a fourth U.S. facility, expected in late 2024. Management estimates approximately $2.0 billion of investment remains for these facilities and upgrades.
- Demand visibility: Customer contracts covered 69.4 GW DC of future module sales for an aggregate transaction price of $20.4 billion, expected to be recognized through 2029. The amount excludes several forms of variable consideration and may change with contract amendments, technology improvements, tax-credit provisions, freight, commodity prices, and committed module wattage. Potential technology-related price adjustments could add up to $0.7 billion, if realized.
- Management believes available liquidity, operating cash flows, customer contracts, and potential capital-market access will be sufficient for working capital and capital expenditure needs for at least 12 months. Deferred revenue was approximately $1.3 billion, primarily reflecting customer advance payments.
- Key business risks include solar-industry oversupply and pricing pressure; competition and technology execution; supply-chain and raw-material availability and cost; logistics; interest rates and customer financing; and changes in government incentives and trade policy. IRA technical guidance remains pending, and the amount of future benefits is subject to uncertainty.
- Contingencies: In Southern Power arbitration concerning five EPC projects, the company said Southern was seeking approximately $60 million. First Solar considered a loss reasonably possible but could not estimate a loss range. Securities class and derivative actions, and customer-related patent claims, were also pending; the company could not estimate potential losses for these matters. The module collection and recycling liability was $130.3 million.
- Management reported no material changes to the risk factors in its 2022 Form 10-K and concluded disclosure controls were effective as of March 31, 2023.
Important facts for investors to verify
- Whether Section 45X eligibility, regulations, and realization of the recognized and expected credits support margins and cash generation as anticipated.
- Progress, cost, and timing of the India and U.S. expansions, Series 7 ramp, and planned 2023 production and sales volumes.
- Backlog delivery schedules and the eventual effect of contract price adjustments and customer amendments on the stated $20.4 billion transaction price.
- Liquidity and funding needs against planned capital expenditures, long-term supply commitments, and the $3.7 billion of remaining substrate-glass and $279 million of cover-glass purchases disclosed by the company.
- Developments in the Southern arbitration and other litigation, including whether any potential loss becomes estimable or requires accrual.