This summary is based on the second quarter fiscal 2008 earnings call conducted by First Solar, Inc. (FSLR) on July 30, 2008.
Management:
VP, IR: Larry Polizzotto
CEO and Chairman: Michael J. Ahearn
CFO: Jens Meyerhoff
President: Bruce Sohn
Key Investors Issues
- EPS were 87 cents per share compared to 61 cents a year ago.
- Net income was $69.7 million, up from $44. 4 million for second-quarter 2007.
- Net sales were $267 million, an increase of $189.8 million compared to the same period of 2007.
Second Quarter Highlights
Net sales were $267 million, an increase of $70.1 million, or 35.6% over the first quarter of 2008 and an increase of $189.8 million compared to the same period of 2007.
- The increase in net sales was driven by the ramp of plant one in Malaysia, contributing $47.4 million, increased line throughput and customer mix of approximately $13.3 million the further strengthening of the euro contributing $9.4 million.
- ASP per watt rose to $2.57, up from $2.45 in the first quarter of 2008, primarily driven by favorable foreign exchange rates.
- Gross margin was 54.2%, up from 53% in the first quarter of 2008. Gross margin benefited from favorable foreign exchange rate trends, increased conversion efficiency, higher module run rates and lower material costs. This was partially offset by a ramp penalty of $6.4 million, or 2.6% associated with the ramp of first plant in Malaysia.
- The company maintains an average 50% hedge of expected net income over a rolling 12-month period, composed of forward contracts and ability to naturally hedge. For the remainder of 2008, 54% of expected 2008 euro denominated net sales have been hedged at an average exchange rate of $1.50 per euro.
- Given the natural hedge at Frankfurt Oder facility, approximately 73% of expected 2008 earnings are hedged at this point. Cost per watt was $1.18, up from $1.14 in the prior quarter, due to 6 cents of Malaysia one ramp costs, 2 cents of foreign exchange impact for expenses at Frankfurt Oder plant. This was partially offset by increased through put, lower material cost and lower labor cost in Malaysia.
Manufacturing costs per watt included 3 cents of stock-based compensation.
- Operating expenses were $56 million, versus $46.2 million in the first quarter of 2008. Excluding plant start-up cost, operating expenses were $51.4 million, up from $33.4 million in the first quarter.
- The increase of $18 million is a result of increased labor and infrastructure investments to support continued growth, with the main drivers being hiring and compensation expenses of $7.4 million, increased compensation expenses of $3.4 million and increase in R&D-related expenses of $1.7 and $5.5 million of various other expenses.
- Plant start-up costs decreased by $8.1 million sequentially to $4.6 million as plant one in Malaysia commenced production, and the company continued to incur start-up expenses of plants two through four, plant start-up expenses will increase sequentially in the third and fourth quarter of 2008, due the pending start-up of these plants.
- Operating income was 33.2% of net sales, or $88.7 million, compared to 29.5% or $58.1 million during the first quarter and $5.8 million during the same period of 2007 and included $15.4 million of stock-based compensation expenses.
- Interest income was $4.9 million, reflecting an average pretax yield of 2.9% and compared to $6.7 million in the first quarter of 2008. The decline in interest income was driven by lower interest rates and an average portfolio maturity of less than 90 days.
- Net income was $69.7 million, or 85 cents per share on a fully basis, compared to $46.6 million or, 57 cents per share on a fully basis in the first quarter.
- Tax rate was 25.8%. Cash and all other marketable securities decreased by $47.8 million to $661.2 million. Cash flow from operations was $59.2 million, and was impacted unfavorably by an increase in working capital of $59.8 million, both revenue growth and the actual pending start-up of various plants in Malaysia.
- The company spent $160 million in capital expenditures, against depreciation of $13.4 million.
Production was 114.1 megawatts, representing an annualized line capacity of approximately 48 megawatts per line, which is a 5% increase over the first quarter and a 30% increase year-over-year, resulting from continuous run rate, yield and efficiency improvements.
Conversion efficiency increased 10 basis points sequentially to an average of 10.7% for the quarter.
- The construction of Malaysia manufacturing center is progressing well. Plant one ramped better than expected and contributed $47.4 million to net sales.
- Plant two construction and equipment qualification had been completed and the company expects the production ramp to commence during the third quarter. The company expects revenue shipments from plant two following successful completion of product qualification test in the beginning of the fourth quarter. Plant two is scheduled to achieve full capacity by year end. Plants three and four are progressing well.
- In Germany revisions to the feed-in tariff law have brought greater certainty to the market, although steeper digression rates will make project economics more challenging for the industry over the next several years. In response to the lower feed-in tariff for free field projects, the company expects German customers to gradually begin shifting higher proportions of their first solid deployments in Germany from free field to roof top systems and to pursue opportunities increasingly outside of Germany.
- The company expects to see increasing sales in Italy over the balance of 2008 and 2009, as several of customers with long-term contracts begin to serve this market. In addition, the company entered into a 17-megawatt contract that establishes a new business relationship with NL, the largest utility in Italy.
- The company anticipates sales growth in France.
- In Spain, the company is following discussions within the Spanish government concerning revision toss the Royal decree.
- In the US 2008 goals are to establish pilot projects that will enable to validate and demonstrate the cost and performance of utility scale PV systems in the US and to establish business relationships with US utilities that will enable to expand project volumes in future years. The company focused its efforts on California due to investor-owned utilities large unmet demand for solar power in order to comply with that state''s renewal portfolio standards.
- The company made progress on US market goals. The company announced a 7.5-megawatt AC pilot project in Blythe, California, which First Solar may expand at its option to 21 megawatts AC.
- First Solar will construct and finance this project and sell the power to Southern California Edison under a long-term purchase agreement. The company received approval from the California Public Utilities Commission and anticipates starting construction in the first half of 2009, subject to an extension of the federal ITC.
- The company announced a 10-megawatt AC project in Nevada with Sempra generation, a subsidiary of Sempra Energy which First Solar will construct adjacent to an existing combined cycle flat. The project is expected to be completed by the end of 2008.
The company announced a 2-megawatt AC roof top project in Southern California, which the company believes will be the largest rooftop PV system in the US. First Solar has supplied the design and hardware for the system, which will be owned directly by southern California Edison.
- Construction has commenced and southern California, Edison expects to connect the PV power plants to grid in September 2008. These pilot projects enable First Solar to validate various system designs, product applications and business models that have the potential to dramatically lower solar electricity prices in the US and to develop business relationships with two of the leading utilities in California.
Fiscal 2008 Outlook
