First Solar Reports Q4 2024 Earnings: Key Highlights and 2025 Outlook

First Solar (FSLR) Q4 2024 Earnings Call Transcript

Good afternoon, everyone, and welcome to First Solar’s Q4 and full-year 2024 earnings and 2025 guidance call. This call is being webcast live on the Investors section of First Solar’s website at investor.firstsolar.com. All participants are in listen-only mode, and today’s call is being recorded. I would now like to turn the conference over to your host, Byron Jeffers, head of investor relations. Please go ahead, sir.

Byron Jeffers — Vice President, Finance, Treasury, and Investor Relations

Good afternoon and thank you for joining us on today’s earnings call. Joining me today are our Chief Executive Officer, Mark Widmar; and our Chief Financial Officer, Alex Bradley. During this call, we will review our financial performance for 2024 and discuss our future business outlook for 2025. Following our remarks, we will open the call for questions.

Before we begin, please note that some statements made today are forward-looking and involve risks and uncertainties that could cause actual results to differ materially from management’s current expectations. We undertake no obligation to update these statements due to new information or future events. For a discussion of factors that could cause these results to differ materially, please refer to today’s earnings press release and our Form 10-K filing with the SEC, which can be found on our website at investor.firstsolar.com.

Now, I’m pleased to turn the call over to our CEO, Mark Widmar. Mark?

Mark R. Widmar — Chief Executive Officer and Director

Good afternoon, and thank you for joining us today. Beginning on Slide 3, I will share some key highlights from 2024. From a commercial perspective, 2024 saw us maintain a highly selective approach to contracting, which we anticipated at the start of the year. We secured full-year net bookings of 4.4 gigawatts at a base average selling price (ASP) of $0.305 per watt, excluding adjusters for India domestic sales and terminations. This led to a year-end contracted backlog of 68.5 gigawatts. We are pleased to report a record 14.1 gigawatts of modules sold in 2024, with net sales reaching $4.2 billion, reflecting a 27% year-on-year increase and aligning with our prior earnings call guidance.

Our full-year diluted earnings per share (EPS) came in at $12.02, which included an after-tax impact of approximately $0.42 per share from the December sale of 2024 Section 45X tax credits, not factored into our October guidance. Alex will provide further details on our financial performance later in the call.

From a manufacturing perspective, we produced 15.5 gigawatts in 2024, including 9.6 gigawatts of Series 6 modules and 5.9 gigawatts of Series 7 modules. We began producing and selling our first CuRe modules from our lead line in Ohio in Q4. Additionally, we advanced our technology roadmap by commissioning a dedicated R&D innovation center in Ohio, featuring a high-volume manufacturing scale production pilot line. We also began ramping a new perovskite development line capable of producing small form factor modules at our Perrysburg campus.

Our growth trajectory continued throughout 2024, as we ended the year with approximately 21 gigawatts of global nameplate manufacturing capacity, an increase of over 4 gigawatts compared to 2023, driven by the addition of our new Alabama facility and throughput optimization in Ohio. Furthermore, we are on track with the construction of our $1.1 billion Louisiana manufacturing facility, which is expected to begin commercial operations in the second half of this year, ultimately increasing our global nameplate capacity to over 25 gigawatts by 2026.

Turning to Slide 4, I will discuss our recent shipments and bookings. At the end of 2023, our contracted backlog reached 78.3 gigawatts, with an aggregate value of $23.3 billion, or approximately $0.298 per watt. In 2024, we recognized sales of 14.1 gigawatts and contracted an additional 4.4 gigawatts of net bookings, resulting in a year-end contracted backlog of 68.5 gigawatts, valued at $20.5 billion or approximately $0.299 per watt.

Since our previous earnings call, we have contracted a net 0.4 gigawatts of new volume, including 0.3 gigawatts in India and approximately 40 megawatts of inventory below our current contracted backlog minimum bin requirement through a nontraditional revenue-sharing contracting arrangement with a module distributor. The remaining net bookings include 0.6 gigawatts of sales to our traditional U.S. utility-scale customers at an ASP of $0.305 per watt, excluding adjusters, or up to $0.314 per watt, assuming realization of applicable adjusters, partially offset by 0.5 gigawatts of terminations.

In total, for 2024, we achieved approximately 5.1 gigawatts of gross bookings for our traditional U.S. utility-scale customer base at an ASP of $0.309 per watt, excluding adjusters, or up to $0.328 per watt with potential adjusters. Additionally, we experienced 2.4 gigawatts of module contract terminations during 2024, with a significant portion of our backlog containing opportunities to increase the base ASP through adjusters if we achieve milestones in our current technology roadmap.

By the end of Q4, we had approximately 37.1 gigawatts of contracted volume with these adjusters, which we estimate could generate an additional $0.7 billion or about $0.02 per watt, most of which would be recognized between 2026 and 2028. This estimate does not include potential adjustments applicable to the total contracted backlog related to the ultimate bin delivered to customers, which may adjust the ASP under sales contracts.

As reflected on Slide 5, our total pipeline of potential bookings remains robust, totaling 80.3 gigawatts, a decrease of around 1.1 gigawatts from the previous quarter. Our mid- to late-stage booking opportunities decreased by approximately 2.5 gigawatts to 21 gigawatts, now comprising 18.5 gigawatts in North America and 2.3 gigawatts in India. Within this pipeline, we have approximately 3.9 gigawatts of opportunities subject to conditions precedent.

As a reminder, signed contracts in India will not be recognized as bookings until we receive full security against the offtake. Given the long-term nature of our sales, we must align customer project visibility with our balanced approach to ASPs, payment security, and other key contractual terms. In light of the recent U.S. elections and their impact on the policy environment, we will continue to leverage our strong contracted backlog and be selective in our approach to new bookings this year.

I’ll now turn the call over to Alex, who will discuss our Q4 and full-year 2024 results.

Alexander R. Bradley — Chief Financial Officer

Thanks, Mark. Beginning on Slide 6, in Q4, net sales were $1.5 billion, a $0.6 billion increase from the prior quarter. For the full year, net sales totaled $4.2 billion, an increase of $0.9 billion compared to the previous year, driven by higher volumes sold. Our Q4 net sales benefited by $20 million from customer contract terminations, while our full-year net sales results were positively impacted by $115 million from these terminations but reduced by warranty charges of $56 million related to Series 7 manufacturing issues discussed in our previous earnings call.

Gross margin in Q4 was 37%, down from 50% in the prior quarter. Full-year gross margin increased by five percentage points compared to 2023, leading to a full-year gross margin of 44%. The lower-than-expected Q4 gross margin was influenced by several factors. In December 2024, we entered a transaction with Visa, resulting in an $857 million sale of Section 45X tax credits. In Q4, we discounted the carrying value of these credits by $39 million, impacting Q4 gross margin by three percentage points and full-year gross margin by approximately one percentage point.

We received $616 million in cash proceeds in Q4, with the remaining $202 million expected in Q1 of 2025. Warranty charges related to manufacturing issues affecting the initial production of Series 7 modules are estimated to range from $56 million to $100 million. We recognized $50 million in the third quarter and $6 million in Q4 due to continued impacts from modules sold during this period.

We have taken corrective actions to address the manufacturing issues identified in our initial Series 7 production, which we believe have been remediated. However, there is potential for formal disputes to arise as we continue to collaborate with customers regarding resolution. Some shipments to customers on products identified as impacted prior to shipment have been delayed as part of this remediation process, resulting in the deferral of approximately 250 megawatts of modules from Q4 2024 to 2025.

In total, the $6 million warranty charge, the 250-megawatt module sale delay, and contract termination payments negatively impacted Q4 gross margin by approximately $16 million relative to our forecast. Additionally, shipment delays within the quarter and from Q4 2024 into 2025 contributed approximately $36 million in incremental costs related to logistics. As of year-end, we held approximately 0.7 gigawatts of potentially impacted Series 7 modules in inventory.

Our Q4 production startup expenses totaled $111 million, a decrease of around $12 million from the prior quarter. For full-year 2024, operating expenses totaled $465 million, an increase of $14 million from the previous year. This increase included a $39 million rise in R&D expenses, driven by higher depreciation and maintenance costs, employee compensation due to increased headcount, and higher material and module testing costs related to our significant R&D investments.

Our fourth-quarter operating income was $457 million, which included depreciation, amortization, and accretion of $124 million, ramping and utilization costs of $39 million, production startup expenses of $15 million, and share-based compensation of $6 million. For the full year 2024, our operating income was $1.4 billion, inclusive of depreciation, amortization, and accretion of $423 million.

We recorded a net tax expense of $53 million in Q4 and $114 million for the full year. Our tax expense included a reserve of approximately $6 million for state taxes in jurisdictions that do not adhere to the federal tax provisions of tax-exempt Section 45X credit sales.

Q4 earnings per diluted share stood at $3.65, compared to $2.91 in the previous quarter. For the full year 2024, earnings per diluted share were $12.02, compared to $7.74 in 2023.

Turning to Slide 7, I will review selected balance sheet items and cash flow information. Our cash, cash equivalents, restricted cash, and marketable securities totaled $1.8 billion at year-end, an increase of $0.5 billion from the prior quarter but a decrease of $0.3 billion from the previous year. Our year-end net cash position was $1.2 billion, an increase of $0.5 billion from the prior quarter and a decrease of $0.4 billion from the previous year.

The increase in our net cash balance in the fourth quarter was primarily driven by $0.6 billion in proceeds from the sale of Section 45X tax credits and positive module segment operating cash flows, partially offset by capital expenditures associated with our Alabama and Louisiana facilities. Although our net cash balance for the full year decreased due to capital expenditures, it was partially offset by module segment operating cash flows.

Cash flows from operations totaled $1.2 billion in 2024, compared to $0.6 billion in 2023, driven primarily by $1.3 billion in proceeds from the sale of Section 45X tax credits. Capital expenditures were $314 million in Q4, down from $434 million in Q3, and totaled $1.5 billion for the full year, compared to $1.4 billion in the previous year.

Now, I’ll turn the call back to Mark for an update on technology and policy.

Mark R. Widmar — Chief Executive Officer and Director

Thanks, Alex. Turning to Slide 8, I will briefly outline our technology strategy. We believe we are entering an age of electrification where electricity will be the backbone of the modern economy. Meeting the unprecedented demand for electricity will require diverse energy generation sources, and we see solar as a key component in the solution mix.

Our strategy is focused on optimizing efficiency, energy, and cost through thin-film technologies. We are pursuing a three-pillar technology strategy. The first pillar emphasizes improvements to our core single-junction CadTel semiconductor technology. In Q4 2024, we began a limited commercial production run of modules using our CuRe technology, which we expect to complete in Q1 2025. Following successful field performance validation, we intend to convert our Ohio lead line to CuRe by Q1 2026.

The second pillar focuses on developing the next generation of thin-film semiconductors for commercial-scale deployment, particularly in perovskite technology at our California Technology Center, supported by associates from our Evolar acquisition. We expect our new dedicated perovskite development line in Ohio to be fully operational by Q2 this year.

The third pillar aims to create the next-generation tandem device, combining two semiconductors to optimize different solar spectrum ranges for high-efficiency modules. We believe that at least one of the semiconductors must be thin-film, and our research will prioritize this direction.

We aim to compete in the near term with the best crystalline silicon technologies while establishing leadership in thin-film technology and manufacturing.

Next, I want to address the intellectual property (IP) landscape that continues to challenge the crystalline silicon industry. Since our last earnings call, there have been multiple patent-related lawsuits among leading manufacturers. Notably, we possess a Topcon patent portfolio following our acquisition of TetraSun in 2013, which includes issued patents in various jurisdictions with validity extending beyond 2030.

Earlier today, we filed a complaint with the United States District Court against several JinkoSolar entities for infringing one of our U.S. TOPCon patents, consistent with our commitment to enforce our IP rights. We also entered into our first licensing agreement for our U.S. TOPCon patents with Talend PV, a U.S. manufacturer.

Given the current landscape, we encourage developers and project owners to evaluate the risks of procuring TOPCon solar products that could be subject to IP-related legal challenges. This environment emphasizes the advantages of First Solar’s differentiated CadTel semiconductor technology over commoditized crystalline silicon panels.

Turning to Slide 9, I will discuss the overall market conditions and policy environment. The macro environment, defined by President Trump, aims to reshape the U.S. economy, particularly regarding electricity production and consumption. Forecasts indicate that the U.S. will require 128 gigawatts of new capacity by 2029 to meet peak summer demand.

However, challenges persist, especially with the time required to expand power generation capacity and grid infrastructure. The cost of new natural gas capacity has significantly increased, and nuclear power plants take over a decade to construct. In contrast, solar offers a low-cost, quick deployment solution, making it essential in the near-term energy mix.

The administration and Congress must ensure that this growth in power generation does not deepen the country’s dependence on China and that American manufacturers have a level playing field. We continue to advocate for decisive actions to address China’s dominance in the solar supply chain.

Regarding trade, the Southeast Asia antidumping/countervailing duty case has progressed since our last earnings call. The Department of Commerce released a preliminary determination establishing higher cash deposit rates for Cambodia, Malaysia, Thailand, and Vietnam. We expect determinations regarding Chinese cross-border subsidizations in these countries soon.

Now, I’ll turn the call back to Alex, who will discuss our 2025 outlook.

Alexander R. Bradley — Chief Financial Officer

Thanks, Mark. Before discussing our financial guidance, I want to reiterate our growth and investment thesis. Our approach to backlog and bookings continues to focus on differentiation, balancing growth, profitability, and liquidity. This framework informs our long-term decision-making, including our strategy to exit the systems business and expand our U.S. R&D and manufacturing base.

As of December 31, 2024, our backlog totaled 68.5 gigawatts at an ASP of nearly $0.30 per watt. Over 90% of our backlog has some form of commodity cost protection, and nearly all includes freight protection. This long-term approach is especially important during periods of macro and industry uncertainty.

For 2025, we anticipate sustained long-term growth in energy generation demand. However, we face significant near-term uncertainty due to unresolved policy environments, which could delay domestic manufacturing expansions. For example, Indian solar manufacturer Premier Energies recently paused plans to build a cell plant in the U.S. due to policy uncertainty.

This uncertainty is also affecting customer caution regarding new procurements and project timelines. Excluding India, we remain cumulatively oversold through 2026. While this position offers revenue visibility in a historically volatile pricing environment, it also presents challenges regarding demand allocation.

As we progress through 2024, we observed increasing customer requests to push out delivery schedules due to project development delays. We also experienced terminations for convenience and default, including notable contract issues in India.

Entering 2025, we are well-positioned in U.S. production, but we are under-allocated for our Series 6 Malaysia and Vietnam production. This situation is driven by customer delivery shift rights and contract terminations from 2024.

In summary, while we are encouraged by long-term opportunities, the combination of project delays, the uncertain policy environment, and demand imbalances leads to challenges in our supply-demand allocation as we enter 2025.

Now, turning to Slide 10, regarding production growth, our factory expansions and upgrades remain on schedule to increase our global nameplate capacity to 25 gigawatts by 2026. In Ohio, we completed our footprint expansion in Q1 of 2024. Our Alabama facility is expected to exit the ramp phase at the end of Q1 2025, while our Louisiana facility will start up in Q3 of 2025.

We forecast domestic production of 9.2 to 9.7 gigawatts, while we plan to reduce output from our Southeast Asia factories by a total of 1 gigawatt this year. Our combined full-year 2025 production forecast is 18 to 19 gigawatts.

Growth-related costs are expected to impact operating income by approximately $110 million to $130 million. This includes startup expenses of $60 million to $70 million primarily associated with our Louisiana factory and ramp and utilization costs of $50 million to $60 million across our facilities.

We anticipate module sales of 18 to 20 gigawatts, with ASPs around $0.29 per watt. Our full-year 2025 cost per watt produced is forecasted at approximately $0.20, reflecting an increase of about $0.01 from 2024, driven by several factors, including ongoing underutilization costs in Ohio and production testing in India.

From a capital structure perspective, our strong balance sheet remains a strategic differentiator, enabling us to weather periods of volatility and pursue growth opportunities. We ended 2024 with a strong liquidity position and expect to finance our capital programs without requiring external financing.

Now, let’s cover the full-year 2025 guidance ranges on Slide 11. Our net sales guidance is between $5.3 billion and $5.8 billion. Gross margin is projected to be between $2.45 billion and $2.75 billion, roughly 47%, including $1.65 billion to $1.7 billion from Section 45X tax credits.

Combined SG&A and R&D expenses are expected to total $410 million to $440 million, and total operating expenses, including production startup expense, are forecasted to be between $470 million and $510 million. Operating income is projected to be between $1.95 billion and $2.3 billion, implying an operating margin of approximately 38%.

We expect full-year tax expense to be $100 million to $120 million, leading to earnings per diluted share guidance of $17 to $20.

In Q1, we anticipate module sales of between 2.7 and 3 gigawatts at a gross margin similar to the full-year average, resulting in earnings per diluted share of between $2.20 and $2.70.

Capital expenditures in 2025 are anticipated to range from $1.3 billion to $1.5 billion, with a significant portion allocated to capacity expansion. Our year-end 2025 net cash balance is expected to be between $0.7 billion and $1.2 billion.

In summary, while our full-year diluted EPS came in below expectations due to discrete costs associated with growth and liquidity principles, we maintained a significant contracted backlog totaling 68.5 gigawatts at an average ASP of $0.30 per watt. For 2025, we forecast earnings per diluted share of $17 to $20, representing an approximately 50% increase over 2024.

With that, we conclude our prepared remarks and open the call for questions.

Questions & Answers:

Operator

Thank you, sir. [Operator instructions] Our first question today is from Brian Lee, Goldman Sachs.

Brian Lee — Analyst

Hey, guys, good afternoon. Thanks for the information. I wanted to start with the guidance range, which seems a bit lighter than usual. How much of this is tied to selling the 1-gigawatt India volume left over from last year? Can you walk through that process and the ASPs expected? Also, regarding safe harbor potential, are you seeing any of that? What are your customers doing in this uncertain environment?

Mark R. Widmar — Chief Executive Officer and Director

I’ll take the safe harbor question, and Alex can address guidance. We’ve met with many customers recently, and while some have already safe-harbored by the end of last year, most have used modules and high-voltage equipment for safe harboring. Given the uncertainty, many projects are in a holding pattern. If we can gain clarity on the situation, we can optimize our offerings together with customers.

Alexander R. Bradley — Chief Financial Officer

Regarding shipments, we guided 18 to 20 gigawatts, a 2-gigawatt range. There’s about 1.4 gigawatts of unsold dependency for the year. The profile of the year adds risk, especially with negotiations ongoing with certain customers related to prior warranty issues.

Mark R. Widmar — Chief Executive Officer and Director

I don’t believe there’s much risk regarding the India volume; we assume current market prices and will not recognize the booking until we have 100% payment security.

Operator

The next question comes from Philip Shen, ROTH Capital Partners.

Philip Shen — Analyst

Thanks for taking my questions. Can you confirm that the production issues have been resolved for Series 7 modules? What is the risk of warranty expenses exceeding $100 million? Additionally, how much are tariffs included in your guidance?

Mark R. Widmar — Chief Executive Officer and Director

The production issues have been addressed, and the Series 7 modules currently being shipped are expected to perform as specified. The warranty expense range is currently $56 million to $100 million, based on the best information we have.

Alexander R. Bradley — Chief Financial Officer

We’re not assuming any tariffs on modules coming into the U.S. from Malaysia, Vietnam, or India. However, we do expect aluminum tariffs to impact our costs.

Operator

We’ll take the next question from Mark Strouse, JPMorgan.

Mark Strouse — Analyst

Thank you for taking my questions. Can you elaborate on the difference between cost per watt produced and sold? Are you still on track to meet 2026 targets?

Alexander R. Bradley — Chief Financial Officer

Our cost per watt produced is close to our expectations from the Analyst Day. The increase in period costs is significant, particularly with warehousing impacting our sales rates.

Mark R. Widmar — Chief Executive Officer and Director

Tariffs and rising costs for glass are also impacting our core costs. We anticipate maintaining a competitive position while addressing these challenges.

Operator

This concludes our question-and-answer session and today’s conference. Thank you for your participation.