First Quarter 2013 Highlights:
GAAP revenue of $443.6 million and GAAP EPS of ($0.40)
Non-GAAP revenue of $431.3 million and non-GAAP EPS of ($0.16)
Semiconductor Materials free cash flow grew sequentially and year-over-year
Solar Energy recognized non-GAAP revenue related to 45 MW of solar energy systems, interconnected 41 MW and ended the quarter with 135 MW under construction
Solar project pipeline grew to 2.7 GW and backlog grew to 925 MW
Cash and cash equivalents of $421.6 million at quarter end
MEMC Electronic Materials, Inc. (NYSE: WFR) announced financial results for the 2013 first quarter that reflected improved execution in the Semiconductor Materials segment and the impact of the decision to slow solar project development spending during 2012. Relative to the prior quarter, Semiconductor Materials segment revenue grew slightly despite continued industry headwinds while Solar Energy segment revenue declined due to lower solar project and solar materials sales. Cash declined $151.0 million, driven primarily by changes in working capital related to solar project construction and timing of collections.
“I am pleased with our Semiconductor Materials performance and excited about our opportunities in Solar Energy,” commented Ahmad Chatila, Chief Executive Officer. “We grew revenue in our Semiconductor Materials segment and again generated cash despite a continued industry slowdown, and we expect to see improving performance through the year. Sales in our Solar Energy segment were soft due to a downward adjustment of our development spending rate last year. We expect the recent increase in construction activity to produce better results later this year. In addition, during the quarter we grew both our pipeline and backlog. We remain committed to maintaining a strong, flexible balance sheet and to generating strong returns for our stakeholders,” Chatila concluded.
Operating cash used in the 2013 first quarter was $118.6 million and was primarily driven by changes in working capital related to project construction and timing of collections. Free cash flow was ($110.6) million and was largely influenced by solar project construction costs, capital expenditures and repayments of solar energy project financing. See the reconciliation of free cash flow in the financial statement tables at the end of this press release.
Capital expenditures were $30.8 million, and included $4.7 million related to the previously announced acquisition of a TCS plant as part of a contract settlement with Evonik. Similar to last quarter, the majority of 2013 first quarter capital expenditures were incurred in the Semiconductor Materials segment.
MEMC ended the 2013 first quarter with cash and cash equivalents of $421.6 million, a decrease of $151.0 million from the prior quarter. Cash declined in the quarter largely due to project timing, which influenced receivables and payables balances. Unrestricted cash and unused corporate revolver capacity was $661.1 million at the end of the 2013 first quarter, as compared to $850.7 million at the end of the 2012 fourth quarter.
Semiconductor Materials revenue was up year-over-year as increased volume across all diameters offset price declines and an unfavorable mix. Year-over-year pricing declined across most diameters, but the decline was greatest among large diameter products. The year-over-year weakness in the Japanese Yen contributed to lower pricing. Volumes increased year-over-year in all diameters, with the largest increase in large diameter products. The sequential revenue increase was primarily driven by higher volumes of small diameter products despite the price declines across all diameters. Based on customer order patterns, the company is cautiously optimistic regarding further volume increases through the remainder of the year, with flat to slightly higher pricing.
The year-over-year increase in operating income was due primarily to higher gross margin and profits driven by increased shipments and lower costs as a result of the company’s restructuring efforts. Segment operating income was down sequentially due to lower pricing and a $4.6 million restructuring benefit recognized in the 2012 fourth quarter.
In the 2013 first quarter, Analog Devices awarded MEMC the “2012 Supplier Excellence Award” for outstanding quality, service and support by our Semiconductor Materials segment.
Solar Energy: GAAP
Solar Energy segment 2013 first quarter revenue was down year-over-year due to fewer megawatts sold, a change in solar project mix driven by EPC only projects and lower solar materials sales. EPC solar projects pricing per watt is generally lower than fully developed solar system projects per watt because the company is not involved in every phase of the solar project design, financing and development. Sequentially lower revenue was the result of lower solar project and solar materials sales, a change in solar project mix driven by EPC only projects and the recognition of deferred revenue in the 2012 fourth quarter related to a previously sold solar project. Fourth quarter 2012 and first quarter 2013 GAAP revenue included $54.4 million and $8.2 million, respectively, of previously deferred revenue related to the sale of projects in prior quarters for which the same amounts were recognized in non-GAAP revenue in the corresponding prior periods. First quarter 2013 also included revenue of $25.0 million related to the amendment of a supply contract with Tainergy. In the 2013 first quarter, Solar Energy recognized GAAP revenue from solar projects totaling 43 MW, compared to 52 MW in the 2012 fourth quarter and 47 MW in the 2012 first quarter.
The increase in year-over-year operating income resulted primarily from $25.0 million of margin recognized as a result of the Tainergy contract amendment, recognition of the previously mentioned $8.2 million of margin from the project-related revenue deferral and a favorable restructuring adjustment of $4.5 million. The sequential decrease in operating income was largely due to lower solar project and solar materials sales.
Solar Energy: Non-GAAP
Revenue decreased year-over-year and sequentially due to lower solar project sales, a change in solar project mix driven by EPC only projects and lower solar materials sales. Non-GAAP revenue was recognized from 45 MW of solar project sales in the 2013 first quarter, compared to 91 MW in the 2012 fourth quarter and 49 MW in the 2012 first quarter. Of the 45 MW that were recognized for non-GAAP revenue in the 2013 first quarter, 41 MW were direct sales and 4 MW were sale-leaseback transactions.
The year-over-year reduction in operating loss resulted primarily from profits associated with the supply contract amendment with Tainergy. The sequential decline in operating income was driven primarily by fewer megawatts sold during the 2013 first quarter and a change in solar project mix driven by the EPC only projects. The 2012 fourth quarter also included benefits of $11.6 million related to a favorable restructuring adjustment and $31.7 million related to a gain on the acquisition of the TCS plant from Evonik.
Solar Project Pipeline, Backlog & Construction
Solar Energy ended the 2013 first quarter with a project pipeline of 2.7 GW, up 0.1 GW compared to the prior quarter and down 0.2 GW from the year ago period. Backlog at March 31, 2013 was 925 MW, an increase of 98 MW compared to the prior quarter. There can be no assurance that all pipeline or backlog projects will convert to revenue because in the ordinary course of our development business some fall-out is typical and certain projects will not be built.
Solar projects interconnected during the 2013 first quarter totaled 41 MW from 27 projects and consisted of 38 MW of direct sale and joint venture projects and 3 MW of sale-leaseback projects. During the 2013 first quarter, 104 MW of projects started construction as compared to 38 MW in the prior quarter. A project is deemed to have started construction when adequate internal approvals have been issued, notice to proceed has been issued and the first construction contractor begins mobilization. As of March 31, 2013, 135 MW of the pipeline was under construction. “Under construction” refers to projects within pipeline and backlog, in various stages of completion, which are not yet operational.
The company provided the following key metrics for the second quarter and revised metrics for full-year 2013. Assuming no significant worldwide economic issues or other significant shocks in these periods, the company expects the following:
For the second quarter 2013:
Semiconductor Materials revenue between $235 million and $245 million
Solar energy systems total non-GAAP sales volume in the range of 29 MW to 54 MW
Solar energy systems MW retained on the balance sheet between 0 MW and 3 MW
Fully-developed solar energy systems average project pricing between $3.40/watt and $3.55/watt
Capital spending between $30 million and $40 million
For the full year 2013:
Semiconductor Materials revenue between $960 million and $1 billion
Solar energy systems total non-GAAP sales volume in the range of 430 MW to 500 MW
Solar energy systems MW retained on the balance sheet between 50 MW and 100 MW
Total solar energy systems average project pricing between $3.10/watt and $3.40/watt
Capital spending between $120 million and $140 million
Use of Non-GAAP Measures
Management has determined that certain non-GAAP metrics for the Solar Energy segment presented herein are the key metrics that will help investors understand the ultimate income and near-term cash flows generated by our Solar Energy segment. These non-GAAP measures and metrics include deferrals required under GAAP real estate and lease accounting for some of SunEdison’s direct sales and or its sale-leaseback transactions. Management has also determined that the non-GAAP measure of “free cash flow” is useful to help investors better understand the capital intensity of our business, including our project financing operations. For a complete description of our non-GAAP measures, see the non-GAAP reconciliation tables below.
MEMC will host a conference call today, May 9, 2013, at 8:00 a.m. ET to discuss the company’s 2013 first quarter results and related business matters. A live webcast will be available on the company’s web site at www.memc.com.
A replay of the conference call will be available from 10:00 a.m. ET on May 9, 2013, until 11:59 p.m. ET on May 23, 2013. To access the replay, please dial (320) 365-3844 at any time during that period, using pass code 292367. A replay will also be available on the company’s web site at www.memc.com.
MEMC is a global leader in semiconductor and solar technology. MEMC has been a pioneer in the design and development of silicon wafer technologies for over 50 years. With R&D and manufacturing facilities in the U.S., Europe, and Asia, MEMC enables the next generation of high performance semiconductor devices and solar cells. Through its SunEdison subsidiary, MEMC is also a developer of solar power projects and a worldwide leader in solar energy services. MEMC’s common stock is listed on the New York Stock Exchange under the symbol “WFR.” For more information about MEMC, please visit www.memc.com.
Certain matters discussed in this press release are forward-looking statements, including our expectations regarding the increased construction activity in our Solar Energy business and that for the second quarter of 2013, the company expects Semiconductor Materials revenue to be between $235 million and $245 million, solar energy systems total non-GAAP sales volume to be in the range of 29 MW to 54 MW, solar energy systems MW retained on the balance sheet to be between 0 MW and 3 MW, fully developed solar energy systems average project pricing to be between $3.40/watt and $3.55/watt, and capital spending to be between $30 million and $40 million; that for the 2013 full year, the company expects Semiconductor Materials revenue to be between $960 million and $1 billion, solar energy systems total non-GAAP sales volume to be in the range of 430 MW to 500 MW, solar energy systems MW retained on the balance sheet to be between 50 MW and 100 MW, total solar energy systems average project pricing to be between $3.10/watt and $3.40/watt, and capital spending to be between $120 million and $140 million. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Potential risks and uncertainties include concentrated project development risks related to large scale solar projects; the availability of attractive project finance and other capital for Solar Energy projects; market demand for our products and services; changes in the pricing environment for silicon wafers and polysilicon, as well as solar power systems; the availability and size of government and economic incentives to adopt solar power, including tax policy and credits and renewable portfolio standards; the ability to effectuate and realize the savings from the restructuring plan; our ability to maintain adequate liquidity and compliance with our debt covenants; the need to impair long lived assets or other intangible assets due to changes in the carrying value or realizability of such assets; the effect of any antidumping or countervailing duties imposed on photovoltaic cells and/or modules in connection with any trade complaints in the United States, Europe or elsewhere; the result of any Chinese government investigations of unfair trade practices in connection with polysilicon exported from the United States or South Korea into China; changes to accounting interpretations or accounting rules; existing or new regulations and policies governing the electric utility industry; our ability to convert solar project pipeline into completed projects in accordance with our current expectations; dependence on single and limited source suppliers; utilization of our manufacturing volume and capacity; the terms of any potential future amendments to or terminations of our long-term agreements with our solar wafer customers or any of our suppliers; general economic conditions, including interest rates; the ability of our customers to pay their debts as they become due; changes in the composition of worldwide taxable income and applicable tax laws and regulations, including our ability to utilize any net operating losses; failure of third-party subcontractors to construct and install our solar energy systems; quarterly fluctuations in our Solar Energy business; the impact of competitive products and technologies; inventory levels of our customers; supply chain difficulties or problems; interruption of production; outcome of pending and future litigation matters; good working order of our manufacturing facilities; our ability to reduce manufacturing and operating costs; assumptions underlying management’s financial estimates; actions by competitors, customers and suppliers; changes in the retail industry; damage to our brand; acquisitions of pipeline in our Solar Energy segment; changes in product specifications and manufacturing processes; changes in financial market conditions; changes in foreign economic and political conditions; changes in technology; changes in currency exchange rates and other risks described in the company’s filings with the Securities and Exchange Commission. These forward-looking statements represent the company’s judgment as of the date of this press release. The company disclaims, however, any intent or obligation to update these forward-looking statements.
For more information on: MEMC