GAAP revenue of $600.7 million and GAAP EPS of ($0.05)
Non-GAAP revenue of $704.3 million and non-GAAP EPS of $0.08
Semiconductor Materials operating leverage continued to improve
Solar Energy recognized non-GAAP revenue related to 91 MW of solar energy systems, interconnected 106 MW and ended the quarter with 73 MW under construction
Cash and cash equivalents of $572.6 million at quarter end
MEMC Electronic Materials, Inc. (NYSE: WFR) announced financial results for the 2012 fourth quarter and full year that reflected ongoing challenges and volatile market dynamics in both of its business segments. Relative to the prior quarter, Solar Energy segment revenue growth was largely driven by higher solar project sales, while Semiconductor Materials segment revenue fell due to an on-going industry downturn.
Semiconductor Materials segment 2012 fourth quarter revenue was flat year-over-year as higher volume was offset by weaker pricing, but revenue declined 4.9% sequentially, as expected, due to weakness in both pricing and volume.
Solar Energy segment 2012 fourth quarter GAAP revenue grew slightly sequentially, driven largely by increased megawatts of solar project sales recognized under GAAP and recognition of deferred revenue related to a previously sold solar project, but was down year-over-year due to a lower number of megawatts sold that could be recognized under GAAP. Non-GAAP Solar Energy segment revenue was slightly higher sequentially due to higher megawatts sold and decreased year-over-year due primarily to fewer solar megawatts sold. External sales from our upstream solar materials operations were lower sequentially and year-over-year.
Fourth quarter 2012 GAAP EPS was ($0.05), and non-GAAP EPS was $0.08.
“The past year was a challenging one, in which both of our end markets faced hurdles created by macroeconomic concerns and an intensely competitive environment. I am pleased with our fourth quarter and full year 2012 results, and commend our workforce for their commitment and exemplary performance given difficult conditions in both our business segments last year,” commented Ahmad Chatila, MEMC’s Chief Executive Officer. “In semiconductor, our cost reductions have increased our operating leverage, and in solar, we have built a platform for growth that can take advantage of declining solar materials pricing through a flexible sourcing strategy. In 2013, we will strengthen our leadership position by penetrating new markets in solar and further streamlining our semiconductor operations,” Chatila concluded.
Key summary financial results for the 2012 fourth quarter are set out in the following table, which provides comparable results for the prior quarter and the year-ago period as well as the quarter-to-quarter and year-over-year comparisons. See the financial statement tables at the end of this press release for a reconciliation of all GAAP to non-GAAP financial measures included herein.
Operating cash flow generated in the 2012 fourth quarter was $19.2 million and was primarily driven by Semiconductor Materials and solar project sales. Free cash flow was ($16.5) million and was largely influenced by the construction and financing of solar energy projects and capital expenditures. See the reconciliation of free cash flow in the financial statement tables at the end of this press release.
Capital expenditures were $38.1 million, and included $11.4 million related to the acquisition of a TCS plant as part of a contract settlement with Evonik. Similar to last quarter, the majority of 2012 fourth quarter capital expenditures were incurred in the Semiconductor Materials segment.
Construction of solar energy systems of $153.7 million in the 2012 fourth quarter included solar energy systems currently classified as owned and carried as fixed assets. The majority of these projects are expected to become sale-leaseback transactions in which the assets are financed with non-recourse debt. Projects expected to result in direct sales are classified as solar energy systems held for development and sale, thus impacting operating cash flows as noted above.
MEMC ended the 2012 fourth quarter with cash and cash equivalents of $572.6 million, a decrease of $37.2 million from the prior quarter. Cash declined in the quarter, largely due to project timing and cash payments relating to the previously announced settlement with Evonik. Unrestricted cash and unused corporate revolver capacity was $850.7 million at the end of the 2012 fourth quarter, as compared to $880.3 million at the end of the 2012 third quarter.
Key segment financial results for the quarter are set out in the following table, which provides comparable results for the prior quarter and the year-ago period as well as the quarter-to-quarter and year-over-year comparisons. See the financial statement tables at the end of this press release for a reconciliation of all GAAP to non-GAAP financial measures included herein.
Semiconductor Materials revenue was flat year-over-year as increased shipments offset price declines. Year-over-year pricing declined across all diameters but was most significant among large diameter products. Volumes of both 200mm and 300mm semiconductor wafers increased year-over-year, while smaller diameter product volumes declined. The sequential revenue decline was primarily driven by lower volumes for smaller diameter wafers.
The year-over-year increase in operating income was due primarily to a $62.2 million restructuring charge in the 2011 fourth quarter. Excluding this charge, segment operating income was still up slightly as restructuring savings and higher volume offset price declines. Segment operating income was down sequentially due to pricing pressure and lower volumes, despite lower operating expenses.
In the 2012 fourth quarter, Semiconductor Materials earned the TSMC Supplier Excellence Award for “outstanding overall performance” in 2012.
The year-over-year GAAP revenue decline was driven by lower solar project and solar wafer sales. Fourth quarter 2012 GAAP revenue and operating income included $54.4 million of previously deferred revenue related to the sale of the 70 MW Rovigo solar project in the 2010 fourth quarter, for which the same amount was recognized in non-GAAP revenue in that quarter. Sequentially higher GAAP revenue was the result of the recognition of the Rovigo deferral and higher solar project sales in the 2012 fourth quarter, partially offset by lower solar module and solar wafer sales. In the 2012 fourth quarter, SunEdison recognized GAAP revenue from solar projects totaling 52 MW, compared to 48 MW in the 2012 third quarter and 102 MW in the 2011 fourth quarter.
The increase in year-over-year GAAP operating income resulted primarily from charges relating to the 2011 restructuring in the 2011 fourth quarter. Excluding these charges, year-over-year GAAP operating profit was still higher due to the previously mentioned deferred revenue recognition from the Rovigo sale in a prior period, a gain related to the acquisition of a TCS plant as part of a contract settlement with Evonik, and lower operating expenses, partially offset by lower solar wafer sales. The sequential increase in GAAP operating income was due to higher solar project sales, partially offset by lower solar module and solar wafer sales. Third quarter 2012 GAAP operating income included $58.3 million from a favorable restructuring adjustment relating to a contract settlement with Evonik and $37.1 million related to the termination of a supply contract with Conergy.
Non-GAAP revenue declined year-over-year due to lower project sales and lower solar wafer sales. Sequentially, non-GAAP revenue increased due to higher solar project sales, partially offset by lower solar wafer and solar module sales. Non-GAAP revenue was recognized from 91 MW of solar project sales in the 2012 fourth quarter, compared to 74 MW in the 2012 third quarter and 109 MW in the 2011 fourth quarter. Of the 91 MW that were recognized under segment non-GAAP revenue in the 2012 fourth quarter, 62 MW were direct sales and 29 MW were sale-leaseback transactions. Included in the 2012 fourth quarter project revenue was the sale of a 14 MW solar project in Totana, Spain. Fourth quarter 2012 non-GAAP revenue included gross additions of $158.0 million and net adjustments of $103.6 million related to direct sale and sale-leaseback transactions ($54.4 million of the reduction is due to the release of the previously mentioned Rovigo solar project deferred revenue).
The year-over-year increase in non-GAAP operating income resulted primarily from charges relating to the 2011 restructuring in the 2011 fourth quarter. Excluding these charges, non-GAAP operating income still increased due to a favorable restructuring-related adjustment relating a contract settlement with Evonik and higher solar project profits. The sequential decline in non-GAAP operating income was driven primarily by revenue related to a contract settlement with Conergy of $37.1 million in the 2012 third quarter, a favorable restructuring adjustment of $58.3 million in the 2012 third quarter and solar materials operating losses in the 2012 fourth quarter.
Solar Energy ended the 2012 fourth quarter with a pipeline of 2.6 GW, down 0.3 GW compared to the prior quarter and down 0.4 GW from the year ago period. The sequential decline was primarily due to the company’s decision to not renew certain expiring land options in Emerging Markets. Backlog at December 31, 2012 was 827 MW. A solar project is classified as “pipeline” where SunEdison has a signed or awarded PPA or other energy off-take agreement or has achieved each of the following three items: site control, an identified interconnection point with an estimate of the interconnection costs, and an executed energy off-take agreement or the determination that there is a reasonable likelihood that an energy off-take agreement will be signed. A solar project is classified as “backlog” if there is an associated executed PPA or other energy off-take agreement, such as a feed-in-tariff. 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 2012 fourth quarter totaled 106 MW in 29 projects, and consisted of 76 MW of direct sale projects and 30 MW of sale-leaseback projects. As of December 31, 2012, 73 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 looks forward to providing its 2013 first quarter and full year outlook, as well as detailed commentary regarding its strategy and 2013 business plan, at its 2013 Capital Markets Day on March 13, 2013. A press release with further details regarding the Capital Markets Day will be issued separately.
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 SunEdison business. 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, February 13, 2013, at 8:00 a.m. ET to discuss the company’s 2012 fourth 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 February 13, 2013, until 11:59 p.m. ET on February 27, 2013. To access the replay, please dial (320) 365-3844 at any time during that period, using pass code 281227. A replay will also be available on the company’s web site at www.memc.com.
Capital Markets Day
MEMC will be holding a capital markets day on March 13, 2013. More information will be available in a separate press release.
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 and on the conference call are forward-looking statements. 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 SunEdison 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 SunEdison 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 SunEdison 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.
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