SunEdison, Inc. Reports Second Quarter 2013 Results

Second Quarter 2013 Highlights:

GAAP revenue of $401.3 million and GAAP EPS of ($0.45)
Non-GAAP revenue of $491.6 million and non-GAAP EPS of ($0.19)
Semiconductor Materials revenue and operating income grew sequentially
Solar Energy recognized non-GAAP revenue related to 51 MW of solar energy systems, interconnected 22 MW and ended the quarter with 200 MW under construction
Solar project pipeline grew to 2.9 GW and backlog grew to 1.0 GW
Cash and cash equivalents of $438.0 million at quarter end

SunEdison, Inc. (NYSE: SUNE), formerly known as MEMC Electronic Materials, Inc., announced financial results for the 2013 second quarter that reflected solid execution in its Semiconductor Materials segment and continued growth in its solar project pipeline and backlog. Relative to the prior quarter, cash increased $16.4 million, driven primarily by solar project financing activities and improved working capital management.

“Business conditions in the second quarter remained challenging, but I am optimistic regarding our prospects for growth through the remainder of this year and into next,” commented Ahmad Chatila, Chief Executive Officer. “Although the semiconductor wafer market continues to be in an extended downturn, our second quarter Solar Materials performance improved. Solar Energy posted sequentially higher non-GAAP sales, pipeline and backlog, and remains well positioned to capture a disproportionate share of the solar market going forward. We remain committed to maintaining a healthy balance sheet, achieving profitability and generating strong returns for our shareholders,” Chatila concluded.

Key summary financial results for the 2013 second quarter are set out in the following table. See the financial statement tables at the end of this press release for a reconciliation of all GAAP to non-GAAP financial measures.

Cash Flow
Operating cash used in the 2013 second quarter was $86.4 million and was primarily driven by changes in working capital related to project construction. Free cash flow was $4.4 million and was largely influenced by capital expenditures, solar project construction costs and solar energy project financing activities. See the reconciliation of free cash flow in the financial statement tables at the end of this press release.

Capital expenditures were $38.8 million and included $9.0 million related to the previously announced acquisition of a TCS plant as part of a contract settlement with Evonik. Similar to the 2013 first quarter, the majority of 2013 second quarter capital expenditures were incurred in the Semiconductor Materials segment.

The company ended the 2013 second quarter with cash and cash equivalents of $438.0 million, an increase of $16.4 million from the prior quarter. Cash increased largely due to solar project financing activities and strong working capital management.

Segment Results
Key segment financial results for the 2013 second quarter are set out in the following table. See the financial statement tables at the end of this press release for a reconciliation of all GAAP to non-GAAP financial measures.

Semiconductor Materials
Semiconductor Materials revenue was up year-over-year and sequentially as increased volume across all diameters offset price declines and an unfavorable mix. Year-over-year and sequential pricing declined across most diameters but the decline was greatest among 300mm products. Continued weakness in the Japanese Yen remains a significant challenge in the competitive pricing environment.

The year-over-year and sequential increase in operating income was due primarily to higher gross margin and profits driven by increased shipments, improved operational efficiencies and various cost reduction initiatives.

Solar Energy segment GAAP revenue was down year-over-year. In the 2012 second quarter, 89 MW of projects were sold which were originally expected to term out in December 2011 but were delayed due to adverse market conditions in Europe. The year-over-year decrease also reflected a less favorable project mix in the current year period and the effect of the company’s decision to slow development spending in 2012. During the 2013 second quarter, all of the projects recognized for GAAP revenue were EPC-only projects, for which 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. Second quarter 2013 GAAP revenue was sequentially lower due primarily to lower solar project sales which were only partially offset by higher solar materials sales. First quarter 2013 included revenue of $25.0 million from the amendment of a supply contract with Tainergy. Second quarter 2013 and first quarter 2013 GAAP revenue included $11.7 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. In the 2013 second quarter, Solar Energy recognized GAAP revenue from solar projects totaling 14 MW, compared to 47 MW in the 2013 first quarter and 144 MW in the 2012 second quarter.

The decrease in year-over-year and sequential GAAP operating income resulted primarily from lower volume and pricing for solar projects and materials. Additionally, first quarter 2013 included operating income of $25.0 million from the previously mentioned contract amendment with Tainergy.

Solar Energy segment non-GAAP revenue was down year-over-year. In the 2012 second quarter, 98 MW of projects were sold which were originally expected to term out in December 2011 but were delayed due to adverse market conditions in Europe. The year-over-year decrease also reflected the effect of the company’s decision to slow development spending in 2012. Non-GAAP revenue was higher sequentially due to higher solar project volume and prices, and higher sales of solar materials products. First quarter 2013 included revenue of $25.0 million from the amendment of a supply contract with Tainergy. Non-GAAP revenue was recognized from 51 MW of solar project sales in the 2013 second quarter, compared to 45 MW in the 2013 first quarter and 169 MW in the 2012 second quarter. Of the 51 MW that were recognized for non-GAAP revenue in the 2013 second quarter, 44 MW were direct sales and 7 MW were sale-leaseback transactions.

The year-over-year decrease in non-GAAP operating income was influenced primarily by lower solar project volume and pricing. The sequential decline in operating income was driven primarily by losses generated from solar wafer sales. First quarter 2013 included operating income of $25 million due to the amendment of a contract with Tainergy.

Solar Project Pipeline, Backlog & Construction
Solar Energy ended the 2013 second quarter with a project pipeline of 2.9 GW, up 218 MW compared to the prior quarter and unchanged from the year ago period. Backlog at June 30, 2013 was 1.0 GW, an increase of 119 MW compared to the prior quarter. 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 2013 second quarter totaled 22 MW from 17 projects and consisted of 16 MW of direct sale projects and 6 MW of sale-leaseback projects. As of June 30, 2013, 200 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.

Outlook
The company provided the following key metrics for the 2013 third 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 third quarter 2013:

Semiconductor Materials revenue between $230 million and $250 million
Solar energy systems total non-GAAP sales volume in the range of 60 MW to 100 MW
Solar energy systems MW retained on the balance sheet between 0 MW and 10 MW
Fully developed solar energy systems average project pricing between $3.25/watt and $3.50/watt
Capital spending between $30 million and $40 million
For the full year 2013:

Semiconductor Materials revenue between $940 million and $980 million
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.

Conference Call
SunEdison will host a conference call today, August 7, 2013, at 8:00 a.m. ET to discuss the company’s 2013 second quarter results and related business matters. A live webcast will be available on the company’s web site at www.SunEdison.com.

A replay of the conference call will be available from 10:00 a.m. ET on August 7, 2013, until 11:59 p.m. ET on August 21, 2013. To access the replay, please dial (320) 365-3844 at any time during that period, using pass code 299055. A replay will also be available on the company’s web site at www.SunEdison.com.

SunEdison is a global leader in semiconductor and solar technology. SunEdison 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, SunEdison enables the next generation of high performance semiconductor devices and solar cells. SunEdison is also a developer of solar power projects and a worldwide leader in solar energy services. SunEdison’s common stock is listed on the New York Stock Exchange under the symbol “SUNE.” For more information about SunEdison, please visit www.SunEdison.com.

Forward-Looking Statements
Certain matters discussed in this press release are forward-looking statements, including that for the third quarter of 2013, the company expects Semiconductor Materials revenue to be between $230 million and $250 million, solar energy systems total non-GAAP sales volume to be in the range of 60 MW to 100 MW, solar energy systems MW retained on the balance sheet to be between 0 MW and 10 MW, fully developed solar energy systems average project pricing to be between $3.25/watt and $3.50/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 $940 million and $980 million, total solar energy systems 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.

Source: SunEdison

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