First Solar outlines new 3.7 GW U.S. finishing facility and trims 2025 EPS guidance amid BP contract terminations

Earnings Call Insights: First Solar (FSLR) Q3 2025

MANAGEMENT VIEW

* Mark Widmar, CEO, reported that since the last earnings call, "we secured gross bookings of approximately 2.7 gigawatts at a base ASP of $0.309 per watt," but also terminated 6.6 GW of bookings under multiyear agreements defaulted on by BP affiliates, with total debookings of approximately 6.9 GW. The current expected contracted backlog stands at about 54.5 GW.
* Widmar highlighted a record delivery of 5.3 GW of module sales and Q3 earnings of $4.24 per diluted share, aligning near the midpoint of prior forecasts. Gross cash increased to $2 billion, driven by improved working capital and accelerated customer payments.
* Production in the quarter was 3.6 GW of modules, with 2.5 GW from U.S. facilities. Production in Malaysia and Vietnam was reduced due to lower demand connected to the BP default.
* Widmar announced the decision to establish a new U.S. production facility to onshore finishing for Series 6 modules, expected to have a planned capacity of 3.7 GW and begin production at the end of 2026, ramping through H1 2027.
* Widmar described supply chain disruptions at the Alabama facility due to domestic glass supplier issues, impacting Q3 production by around 0.2 GW, but corrective actions have been implemented.
* Widmar stated, "We continue to advance our domestic capacity expansion, notably at our Louisiana facility, where we initiated production runs and started plant qualification."
* CFO Alexander Bradley stated, "Our net sales totaled $1.6 billion, representing an increase of $0.5 billion compared to the prior quarter. This increase was primarily driven by higher shipment volumes and the anticipated back-weighted profile of deliveries over the course of the year."

OUTLOOK

* The 2025 net sales guidance is projected at $4.95 billion to $5.20 billion, reflecting a downward revision of about 0.5 GW from the top end of previous guidance. This adjustment is due to reduced international volumes from customer terminations and a 0.5 GW reduction in domestic India sales.
* Gross margin is now expected between $2.1 billion and $2.2 billion (around 42%), including $1.56 billion to $1.59 billion of Section 45X tax credits and $155 million to $165 million of ramp and underutilization costs.
* Full-year 2025 EPS guidance is now $14 to $15 per diluted share, with the upper end reduced by $1.50. The largest impacts were supply chain issues at the Alabama facility and BP contract terminations, each reducing EPS by about $0.60 per share.
* Capital expenditures for 2025 are forecast at $0.9 billion to $1.2 billion. Year-end net cash balance is anticipated between $1.6 billion and $2.1 billion.

FINANCIAL RESULTS

* First Solar recognized 5.3 GW of module sales in Q3, with net sales of $1.6 billion, up $0.5 billion from the prior quarter. The increase was attributed to higher shipment volumes and accelerated deliveries.
* Gross margin for the quarter was 38%, down from 46% in the prior quarter, primarily due to a lower mix of U.S.-manufactured modules and increased underutilization costs.
* The company reported $81 million in contract termination payments, with $61 million related to BP affiliates.
* SG&A, R&D, and production start-up expense totaled $145 million in Q3, up $6 million from Q2, driven by Louisiana facility start-up costs.
* Operating income was $466 million, including $138 million in depreciation, amortization and accretion, $49 million in ramp and underutilization costs, and $37 million in production start-up expense.
* Total cash, cash equivalents, restricted cash, and marketable securities reached $2 billion by Q3 end.

Q&A

* Philip Shen, ROTH Capital Partners: Asked about rebooking BP-terminated volume and incremental pricing. Mark Widmar explained that patience is expected to benefit pricing, especially with upcoming tariff and FEOC guidance, stating, "the value of being patient here is going to only work to our benefit in that regard."
* Brian Lee, Goldman Sachs: Inquired about pricing entitlement and CapEx for the new finishing line. Widmar confirmed the target of $0.365 per watt with new adders and described the balancing strategy for U.S. and international production. CFO Bradley detailed that about 10% of the $260 million CapEx for the new facility would be spent in 2025, the rest in 2026.
* Moses Sutton, BNP Paribas: Sought clarity on BP contract terms. Bradley clarified BP contracts did not allow termination for convenience, and the company is litigating to recover remaining payments.
* Jonathan Windham, UBS: Asked about the split between international and domestic supply related to BP. Widmar said more than half is domestic, with the current year supply mostly international. Windham also asked about product quality ramp in Louisiana and Alabama; Widmar stated both are on track, with Louisiana ahead of schedule.
* Ben Kallo, Baird: Queried about pricing for 4.1 GW of opportunities and cash priorities. Widmar said pricing is historical and not current market, and Bradley reaffirmed the established framework for cash deployment and potential capital return.
* David Arcaro, Morgan Stanley: Questioned confidence in the backlog. Widmar noted ongoing risks from multinational utilities shifting away from renewables but expressed confidence in the fundamentals and contracted offtake agreements.
* Vikram Bagri, Citi: Asked if there is precedent for litigation like the BP case. Widmar stated, "I do believe, though, we're in a strong position," citing prior successful recoveries.
* Joseph Osha, Guggenheim: Asked about under-absorption at Malaysia and Vietnam. Widmar detailed that most capital absorption occurs in front-end processing, and the company is seeking bilateral deals for remaining volume.

SENTIMENT ANALYSIS

* Analysts pressed for details on pricing, backlog risk, and contract enforceability, reflecting a slightly negative to neutral tone, particularly regarding the BP terminations and rebooking risks, with pointed questions on confidence and precedent for litigation.
* Management maintained a confident yet cautious tone during prepared remarks, shifting to a more defensive stance during Q&A, especially on contract risk and supply chain challenges. Widmar frequently emphasized patience, confidence, and the company's structured approach to risk.
* Compared to the previous quarter, analyst sentiment became more skeptical, with sharper focus on contract risk and pricing power, while management's tone shifted from constructive and optimistic to more guarded and explanatory, particularly when addressing risks and mitigation strategies.

QUARTER-OVER-QUARTER COMPARISON

* Guidance for net sales and EPS was reduced, with the upper end of full-year EPS now $15, down by $1.50 per share from last quarter. Gross margin guidance narrowed but stayed at 42%.
* The strategic focus this quarter shifted to mitigating the impact of BP contract terminations, enforcing litigation, and accelerating domestic expansion through the new 3.7 GW U.S. finishing line.
* Volume of gross bookings increased compared to Q2, but debookings were also significantly higher due to BP. Cash position strengthened from $1.2 billion to $2 billion.
* Analyst questions this quarter concentrated more on contract enforceability, backlog confidence, and underutilization risk, compared to last quarter's emphasis on bookings momentum and pricing power.
* Management showed less optimism, focusing on risk management and operational adjustments, a shift from the previous quarter's forward-looking growth narrative.

RISKS AND CONCERNS

* The termination of 6.6 GW of BP contracts resulted in lost gross margin, increased underutilization costs, and litigation risk. Management is seeking $324 million in termination payments and pursuing all available remedies.
* Supply chain disruptions at the Alabama facility led to reduced production and higher underutilization charges.
* Curtailment of production in Malaysia and Vietnam is expected to generate further underutilization charges into 2026, depending on the reallocation of BP-related volume.
* Warranty-related liabilities for Series 7 modules increased to $65 million, reflecting ongoing remediation costs.
* Management highlighted the risk of further contract terminations, especially among multinational utilities, and ongoing challenges in the permitting and tariff environment.

FINAL TAKEAWAY

First Solar's Q3 2025 results reflect a quarter of operational resilience amid significant challenges, including the termination of major BP contracts and supply chain disruptions. The company responded by accelerating domestic manufacturing strategy, advancing a new 3.7 GW U.S. finishing facility, and rigorously enforcing contract rights. While guidance for net sales and EPS was trimmed, management remains focused on leveraging policy tailwinds, maintaining a strong cash position, and methodically rebooking available volumes. The outlook acknowledges ongoing risks tied to contract enforceability and underutilization but underscores the company's commitment to long-term growth and strategic flexibility in a shifting solar market landscape.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/fslr/earnings/transcripts]

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