First Solar delays 2013 guidance despite strong quarter

As expected the boost to sales was due to revenue recognition for the massive Topaz PV project, and the expected increase in third-party module sales, though an Indian project cancellation and other project delays due to weather impacted sales in the quarter.

Solar power systems revenue, which includes both EPC and modules used in its systems business, decreased from 93% of total sales in the third quarter to 87% in the fourth quarter. The company noted that this was due the increase in third party module sales.

First Solar reported a gross margin in the fourth quarter of 27.3%, down from 28.4% in the prior quarter, due to a less favourable mix of projects margins, according to the company. 

The company reported net sales for 2012 of US$3.4 billion, up 22% from 2011, yet was slightly below guidance.

Project pipeline disappearance!

First Solar has done such a good job at managing large-scale PV projects that its pipeline is disappearing! At of the end of the fourth quarter the company had 2.2GW of revenue remaining to be recognized from its project pipeline, which stood at 2.9GW, down from 3GW in the previous quarter.

The company had 1.4GW of shipments and 1.1GW of new bookings in 2012, providing a cumulative near-term demand of 2GW. This would effectively equate to a book to bill ratio 0.8 for 2012, according to management. However, the company is working hard to get that ratio back to at least 1:1 for 2013 or risk depleting the pipeline further.

However, what is most definitely disappearing is the well liked and referenced ‘Systems Pipeline’ slide from quarterly results, beginning in the first quarter results.

“We will cease to show it going forward because we believe that the following slides showing our expected revenue and shipments are a more robust representation of our future demand,” noted Jim Hughes, Chief Executive Officer in the conference call to discuss results.

In future, First Solar will show slides on expected module shipments and expected revenue. According to First Solar such data provides insight into its total business, which includes third party module sales in addition to advanced systems project pipeline. That pipeline only contains projects which have PPA (Power Purchase Agreements) secured and in place.

“Looking at our business this way through an accounting lens if you will, we have over US$8 billion of expected revenue in the future. That is US$1.4 billion lower than at the start of the year,” added Hughes.

Delayed guidance

Not surprisingly, filling the pipeline hole has proved to be priority for the company since last quarter. However, that would seem to have proved unusually problematical.

“During the third quarter our book-to-bill activity was very encouraging but Q4 was a disappointment. The market continues to be extremely competitive and we were out of price position with respect to a couple of key opportunities,” continued Hughes.

This would seem to be at the core of why the company delayed providing full-year 2013 financial guidance as projects have yet to be secured that would fall into this years revenue period and fill the shortfall.

According to Mark Widmar, First Solar’s Chief Financial Officer the company was “in the midst of working to book our remaining volume targets and are also evaluating, negotiating and developing a number of transactions.”

However, what was apparent was that the hole that needed filling was not surprisingly placed in the second-half of the year. Yet Widmar also noted that “first half results will be stronger than the second half of the year as Agua and AVSR [PV projects will] essentially be completed by mid-year.

Furthermore, “as we fill out the second half of 2013 bookings, we anticipate a larger portion of third party module sales in target markets as opposed to system project sales when compared to the first-half 2013, which will also result in lower profitability in the second half of the year.”

1Q 2013 Guidance

The only guidance the company did make releated to the first quarter of 2013. Net sales are expected to in the range of US$650 million to US$750 million. Gross margin was expected to be in the range of 25% to 27%.