First Solar, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019. This is an annual filing; quarterly figures below identify the fourth quarter where relevant. First Solar designs and manufactures cadmium telluride (CdTe) thin-film solar modules and develops, sells, operates, and maintains utility-scale solar power systems.
Financial performance
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $3.063 billion | $2.244 billion |
| Gross profit / margin | $549.2 million / 17.9% | $392.2 million / 17.5% |
| Operating income (loss) | $(161.8) million | $40.1 million |
| Net income (loss) | $(114.9) million | $144.3 million |
| Diluted earnings (loss) per share | $(1.09) | $1.36 |
| Operating cash flow | $174.2 million | $(326.8) million |
| Cash, cash equivalents and marketable securities, year-end | $2.164 billion | $2.547 billion |
| Long-term debt, including current portion | $482.9 million principal | $479.2 million principal |
Revenue rose 36%, principally as module sales increased sharply. Module-segment revenue was $1.460 billion, up 191%; systems revenue was $1.603 billion, down 8%. Gross margin improved 0.4 percentage points. The company recorded a $363 million litigation loss, the principal reported driver of the operating loss; this included a $350 million proposed class-action settlement and a $13 million accrual for a separate opt-out lawsuit.
Investing cash outflow was $362.3 million and financing cash inflow was $74.9 million. Capital spending on property, plant and equipment was $668.7 million. The company reported $5.097 billion in stockholders’ equity and no borrowings under its $500 million revolving credit facility at year-end.
Fourth-quarter 2019 net sales were $1.399 billion, gross profit was $333.6 million, operating loss was $117.9 million, and net loss was $59.4 million. The quarter included the $363 million litigation charge.
Material changes and business developments
- Module production reached 5.7 GW DC in 2019, a 111% increase year over year. Installed Series 6 nameplate capacity was 5.5 GW DC at year-end, following production starts in Vietnam and Ohio.
- Module cost reductions, improved manufacturing utilization, higher third-party module sales, and an $80 million reduction in the product-warranty estimate supported gross profit. The warranty-liability reduction reflected updated return-rate estimates.
- The company shifted U.S. EPC services toward an external, third-party model; existing projects under construction were not expected to be affected. It also began exploring partnership or sale options for all or part of its U.S. project-development business, without a timetable or assurance of a transaction.
- U.S. customers represented 87% of 2019 net sales. One customer represented 16% of total net sales; the filing’s table does not identify that customer by name.
Outlook, liquidity and risks
- Management expected 2020 module production of approximately 5.7 GW DC, substantially all Series 6, and forecast 2020 capital expenditures of $450–$550 million, including the conversion of a Malaysian facility to Series 6.
- At year-end, the company had contracts for 11.6 GW DC of future module sales, with an aggregate transaction price of $3.9 billion expected to be recognized through 2023. Contract volumes and schedules may be amended. Management stated available liquidity and expected funding sources should meet needs for at least 12 months.
- Near-term liquidity demands include the $350 million settlement fund contribution made in February 2020, subject to court approval, and substantial purchase commitments: $1.424 billion total, including $900.2 million due within one year. The company also disclosed up to $430 million of aggregate termination penalties under specified glass-supply agreements.
- Key risks include industry oversupply and module/system price pressure, competition from higher-efficiency and bifacial silicon products, policy and trade uncertainty, customer and project-financing concentration, execution of Series 6 manufacturing plans, supply constraints, project permitting and construction risks, and foreign-exchange exposure.
- Warranty and recycling estimates require significant judgment. Year-end product-warranty liability was $129.8 million; a 1 percentage-point increase in estimated module return rates would raise it by $89.8 million. Recycling liability was $137.8 million; a 1 percentage-point increase in assumed annual inflation would raise it by $26.3 million.
- The company reported effective disclosure controls and internal control over financial reporting. The auditor issued an unqualified opinion and identified the warranty and recycling liabilities as critical audit matters.
Important facts for investors to verify
- Whether the $350 million class-action settlement receives final court approval, and the eventual outcome and cost of the separately accrued opt-out action.
- Whether 2020 production and capital-spending expectations are achieved, and how the Series 6 facility conversion affects costs, output, and margins.
- Whether module backlog converts to sales on expected timing and pricing, and whether customer concentration or contract amendments alter expected revenue.
- Whether cash and securities remain sufficient after settlement funding, capital expenditures, project investment, and contractual commitments.
- How warranty-return experience and future recycling costs compare with management’s assumptions, and whether policy, tariff, or competitive changes pressure profitability.