Lower earnings than our $0.75 estimate, lower than Cowen's $0.54, beat consensus $0.48. The currency loss shaved 15 cents per ADS.
The conference call is going on right now, today's action will depend on the explanation of the currency adjustment and more importantly, market reaction to the guidance* for the balance of the year.
*(For the second quarter of 2008, the Company expects to ship between 43 MW and 45 MW of PV modules and has expectations of total net revenues in the range of $169 million to $177 million. The Company believes gross margin for the second quarter will likely be between 23% and 25% and estimates operating margin to range between 13.5% to 15.5% of total net revenues.
For the full year of 2008 the Company expects total net revenues to be in the range of $770 million to $808 million, with PV module shipments between 200 MW to 210 MW. The Company is expecting gross margin for the year between 23% and 25% and believes operating margin will likely be in the range of 15% to 17% of total net revenues.)
From the press release:
First Quarter 2008 Financial and Operations Highlights
-- Solar module shipments were 29.49 MW, up 180.3% from 10.52 MW in the
first quarter of 2007 and 23.3% from 23.91 MW in the fourth quarter of
-- Total net revenues increased to $120.7 million, up 183.6% year-over-
year and 19.0% sequentially
-- Gross profit was $31.1 million, an increase of 226.8% year-over-year
and 12.6% sequentially
-- Gross margin was 25.8%, compared to 22.3% in the first quarter of 2007
and 27.2% in the fourth quarter of 2007
-- Operating margin was 16.7%, compared to 10.5% in the first quarter of
2007 and 16.0% in the fourth quarter of 2007
-- Net income was $12.9 million, compared to $4.8 million in the first
quarter of 2007 and $15.7 million in the fourth quarter of 2007
-- Net income of $12.9 million includes a foreign currency exchange loss
of $4.0 million, primarily associated with the remeasurement of the
non-US dollar denominated obligations in the US dollar functional
-- Earnings per fully-diluted ADS was $0.51
''We are pleased with our first quarter performance, as we benefited from our integrated manufacturing capabilities to offset higher silicon feedstock costs,'' said Trina Solar's Chairman and CEO, Jifan Gao. "We also made solid progress on our technology roadmap, including reducing wafer thickness and other process improvements, all of which contributed to lower our module manufacturing costs. These developments, combined with our new automated wafer and cell line manufacturing workshops, are central to our strategy of continuously improving our technology platform, ensuring our low cost position through a vertically integrated business model, and developing a strong brand globally.''
First Quarter 2008 and Recent Business Highlights
-- Expanded capacity to approximately 200 MW for each of ingot, wafer,
cell and module production as of March 31, 2008
-- Introduced automation and in-line processing to new cell production
lines 7 and 8
-- Achieved 100% in-house cell processing, an increase from approximately
75% in the fourth quarter of 2007
-- Reduced monocrystalline and multicrystalline wafer thicknesses from 200
to 180 microns and from 220 to 200 microns, respectively
-- Enhanced the Company's brand recognition and market share by further
developing sales channels in developing solar markets, including
Belgium, France, Korea, Australia and the Netherlands
-- Received Underwriters Laboratory (UL) certifications to initiate sales
in the United States, with initial contracts secured for the second
half of 2008 and throughout 2009
-- Contracted 100% and 90% of first and second half of 2008 targeted
module production, respectively, or approximately 95% of 2008 targeted
module production of 200 MW to 210 MW
-- Announced long-term polysilicon supply contracts with GCL Silicon
Technologies, Silfab S.p.A. and Qingdao DTK
-- Initiated deliveries to customers on a long-term contract basis to
increase visibility on 2009 business such as Phoenix (Germany), Proinso
(Spain), Pirelli (Italy) and Clipsol (France)
First Quarter 2008 Results
Trina Solar's net revenues in the first quarter of 2008 were $120.7 million, an increase of 19.0% sequentially and 183.6% year-over-year. Total shipments in the first quarter of 2008 increased to 29.49 MW, up from 23.91 MW in the fourth quarter of 2007 and 10.52 MW in the first quarter of 2007. Average sales price ("ASP") was $3.95 in the first quarter of 2008, compared to $3.94 in the fourth quarter of 2007 and $3.80 in the first quarter of 2007.
Gross Profit and Margin
Gross profit in the first quarter of 2008 was $31.1 million, an increase of 12.6% sequentially and 226.8% year-over-year. Gross margin was 25.8% in the first quarter of 2008, a decrease from 27.2% in the fourth quarter of 2007 and an increase from 22.3% in the first quarter of 2007. The sequential decrease was predominantly due to higher cost of silicon raw materials. The year-over-year increase in gross margin was primarily due to higher module ASP and cost efficiencies from in-house cell production.
Operating Expense, Income and Margin
Operating expenses in the first quarter of 2008 were $10.9 million, representing 9.0% of first quarter net revenues, a decrease of 11.2% from the fourth quarter of 2007 and 11.8% from the first quarter of 2007. The sequential and year-over-year decreases were primarily due to lower general and administrative (''G&A'') expenses and sales and marketing expenses as a proportion of total net revenues. Operating expenses in the first quarter of 2008 included approximately $1.3 million of share-based compensation expenses.
Operating income in the first quarter of 2008 was $20.2 million, an increase of 24.5% sequentially and 352.2% year-over-year.
Operating margin was 16.7% in the first quarter of 2008, compared to 16.0% in the fourth quarter of 2007 and 10.5% in the first quarter of 2007. The sequential and year-over-year increases in operating margin were due to increased manufacturing benefits from vertical integration.
Change of Functional Currency
Effective January 1, 2008, the Company changed the functional currency of its operating subsidiary, Changzhou Trina Solar Energy Co., Ltd. (''Trina China''), from RMB to US dollars. This change is in accordance with FASB Statement No. 52, "Foreign Currency Translation", and was based on Trina China's significant and sustained shift in conducting a majority of its business activities in US dollars. During the first quarter of 2008, the Company recorded an exchange loss of $4.0 million, which was primarily associated with Trina China's non-US-denominated obligations that are now required to be remeasured in the US dollar functional currency. Such remeasurements are and will continue to be, to the extent we continue to have such non-US denominated obligations, recorded as transaction gains or losses in the consolidated statement of operations.
Interest Expense and Income
Interest expense in the first quarter of 2008 was $3.5 million, compared to $2.6 million in the fourth quarter of 2007 and $1.2 million in the first quarter of 2007. The sequential and year-over-year increases were due to additional bank borrowings and an increase in interest rates. Interest Income was $1.2 million in the first quarter of 2008, compared to $2.4 million in the fourth quarter of 2007 and $0.4 million in the first quarter of 2007.
Net Income and EPS
Net income was $12.9 million in the first quarter of 2008, compared to $15.7 million in the fourth quarter of 2007 and $4.8 million in the first quarter of 2007. Net Income of $12.9 million includes a foreign currency exchange loss of $4.0 million, primarily associated with the remeasurement of Trina China's non-US dollar denominated obligations in the US dollar functional currency.
Net margin was 10.7% in the first quarter of 2008, compared to 15.5% in the fourth quarter of 2007 and 11.2% in the first quarter of 2007. Earnings per fully diluted ADS in the quarter were $0.51.
The Company's quarterly and yearly 2007 financial statements are subject to change based on the Company completing its computation of the fair value of a foreign exchange derivative embedded in a material long-term silicon supply contract. Such contract provides that the purchase price of the silicon to be acquired be denominated in US dollars, which is not the functional currency of either of the contracting parties at the time the contract was entered into. Given the continued strengthening of the RMB against the US dollar, the Company believes that the ultimate impact will be an increase in earnings for the year 2007. The impact, if material, will be recorded as ''change in fair value of derivative'' a non-cash and non-operating item in the consolidated statement of operations.
Due to the change of Trina China's functional currency to US dollars, effective January 1, 2008, this contract-related embedded derivative will no longer be required to be measured at fair value with changes in fair value recorded in the consolidated statement of operations. However, ''Retained earnings,'' ''Total shareholders' equity'' and ''Total liabilities and shareholders' equity'' items in the balance sheet of our financial statements as of March 31, 2008 may be subject to change upon completion of the computation of the embedded derivative due to its existence as of and for the year ended December 31, 2007.
As of March 31, 2008, the Company had $38.2 million in cash and cash equivalents, which excludes the Company's restricted cash balance of $126.0 million. Restricted cash comprises deposits pledged to banks to secure bank borrowings and letter of credit facilities. The Company's working capital balance was $84.8 million. Total bank borrowings stood at $259.7 million, of which $14.2 million were long-term borrowings. Shareholders' equity as of March 31, 2008 was $380.9 million.
Business Operations Outlook
2008 Silicon Feedstock
The Company has now secured approximately 95% of its estimated silicon feedstock requirements for 2008.
The Company continues to expand its geographic sales distribution outside of the primary European PV markets, including contracts with Enfinity (Belgium), Giordano and Solargie (France), Pirelli-SolarUtility (Italy), and Worldwide Energy (United States). Approximately 95% of the Company's targeted 2008 module production of 200 MW to 210 MW has now been contracted.
Discontinuance of Polysilicon Project
On April 14, 2008, the Company announced its decision to discontinue the development of its previously announced 10,000 MT polysilicon production facility. The Company made this strategic decision after careful assessment of its raw material requirements in conjunction with recent and favorable developments in the long-term polysilicon supply environment. The Company now believes it has greater access to polysilicon feedstock to support its growth objectives, particularly that the Company has signed long-term contracts covering large amounts of polysilicon feedstock, while achieving the necessary cost reductions to maintain its competitive advantage. To address its future polysilicon requirements, the Company will continue to negotiate and sign long-term contracts to meet its strategic supply needs. Additionally, the Company will consider strategic investment options in future polysilicon projects which offer attractive economics and involve smaller investment requirements, although no projects are currently under consideration. The Company's decision to discontinue the project will not affect the amount of polysilicon feedstock it expects to receive in 2008 and 2009.
Second Quarter and Fiscal Year 2008 Guidance
For the second quarter of 2008, the Company expects to ship between 43 MW and 45 MW of PV modules and has expectations of total net revenues in the range of $169 million to $177 million. The Company believes gross margin for the second quarter will likely be between 23% and 25% and estimates operating margin to range between 13.5% to 15.5% of total net revenues.
For the full year of 2008 the Company expects total net revenues to be in the range of $770 million to $808 million, with PV module shipments between 200 MW to 210 MW. The Company is expecting gross margin for the year between 23% and 25% and believes operating margin will likely be in the range of 15% to 17% of total net revenues.
The Company will host a conference call at 8:00 a.m. ET on June 6, 2008, to discuss the results for the quarter ended March 31, 2008. Joining Jifan Gao, Chairman and CEO of Trina Solar, will be Terry Wang, Senior Vice President of Finance, Sean Tzou, Chief Operating Officer, Andy Klump, Vice President of Business Development, Arturo Herrero, Vice President of Sales and Marketing, and Thomas Young, Director of Investor Relations. To participate in the conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 1(800)884-2382. International callers should dial +1(660)422-4933. The conference ID for the call is 47429382.
If you are unable to participate in the call at this time, a replay will be available on June 6, at 11:00 a.m. ET, through June 13 at 11:59 p.m. ET. To access the replay, dial 1(800)642-1687, international callers should dial +1(706)645-9291 and enter the conference ID 47429382.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties on Trina Solar's website at http://www.trinasolar.com . To listen to the live webcast, please go to Trina Solar's website at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a replay will be available shortly after the call on Trina Solar's website for 90 days.