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Press release from Business Wire

STR Holdings, Inc. Reports Third Quarter 2012 Results

Wednesday, November 07, 2012

STR Holdings, Inc. Reports Third Quarter 2012 Results16:01 EST Wednesday, November 07, 2012 ENFIELD, Conn. (Business Wire) -- STR Holdings, Inc. (NYSE: STRI) today announced its financial results for the third quarter and nine months ended September 30, 2012. Third Quarter 2012 Financial Summary: Net sales of $23.1 million Diluted GAAP loss per share from continuing operations of $(0.09); Diluted non-GAAP loss per share from continuing operations of $(0.03) Finished the quarter with $70.6 million in cash and no debt Financial Results Net sales for the quarter ended September 30, 2012 were $23.1 million. This represents a decline of 8.1% sequentially and 58.9% from Q3 2011. On a sequential basis, the decline was driven primarily by a volume decline of approximately 7% and unfavorable foreign exchange impact of approximately 1%. On a year-over-year basis, volume declined by approximately 45% and ASP declined by approximately 20%. “We believe that demand has softened considerably throughout the industry on the heels of negative policy revisions, primarily in Italy and Germany, and our sequential volume reflects this,” said Robert S. Yorgensen, STR's President and Chief Executive Officer. “We continue to execute our strategic objectives of reducing our cost structure and developing innovative products. The launch of our next-generation encapsulant is progressing well with favorable results obtained from our internal testing and the successful completion of damp heat testing with several prospective Chinese customers.” Gross profit for the third quarter of 2012 was $0.6 million, or 2.5% of sales, compared to $1.6 million, or 6.3% of sales, from the second quarter of 2012, primarily driven by unfavorable cost absorption. Selling, general and administrative expenses for the third quarter of 2012 were $5.8 million compared to $6.7 million in the second quarter of 2012. The reduction was driven by lower non-cash stock-based compensation expense and continued cost reduction efforts. Net loss from continuing operations for the third quarter of 2012 was $(3.6) million, or $(0.09) per diluted share. This compares to a net loss from continuing operations of $(2.4) million, or $(0.06) per diluted share, for the second quarter of 2012 and net earnings from continuing operations of $3.8 million, or $0.09 per diluted share, for the third quarter of 2011. Non-GAAP net loss from continuing operations for the third quarter of 2012, which excludes certain tax-effected adjustments (as disclosed following the non-GAAP reconciliation table at the end of this press release), was $(1.1) million, or $(0.0 3) per diluted share. This compares to non-GAAP net earnings from continuing operations of $0.0 million, or $0.00 per diluted share, for the second quarter of 2012 and non-GAAP net earnings from continuing operations of $8.8 million, or $0.21 per diluted share, for the third quarter of 2011. Balance Sheet and Liquidity During the third quarter of 2012, the Company had negative operating cash flow from continuing operations of $(0.7) million primarily due to unfavorable timing of foreign tax payments of $2.5 million. Free cash flow from continuing operations was $(1.8) million during the third quarter of 2012. The Company finished the third quarter of 2012 with $70.6 million of cash and no debt. In addition, the Company received approximately $8.0 million of cash from income tax refunds in October that will be reflected in its October cash balance. Guidance The Company today provided guidance for the fourth quarter and updated its full-year 2012 guidance as follows:   STR Holdings, Inc.Business Outlook           Amounts in millions, except per share amounts   Quarter ending December 31, 2012         Low   High Net sales $ 14.0 $ 16.0 Diluted non-GAAP EPS $ (0.09) $ (0.07)     Year ending December 31, 2012         Low   High Net sales $ 93.0 $ 95.0 Diluted non-GAAP EPS $ (0.05) $ (0.03)     Third Quarter Conference Call and Presentation The Company will discuss its financial results and guidance in a conference call today at 4:30 p.m. ET. A live webcast of the conference call and presentation will be available through the Investor Relations section of the Company's website at www.strholdings.com. Investors accessing the live call by phone from the U.S. should dial (866) 510-0707 and enter passcode: 57545208. Those calling from outside the U.S. should dial (617) 597-5376 and use the same passcode. A telephone replay will be available approximately two hours after the call concludes through Wednesday, November 14 , 2012, by dialing (888) 286-8010 from the U.S., or (617) 801-6888 from international locations, and entering passcode: 76494891. The webcast and presentation will be archived on the Company's website for one year. About STR Holdings, Inc. STR Holdings, Inc. is a leading global provider of high-quality, superior performance encapsulants to the photovoltaic module industry. Further information about STR Holdings, Inc. can be obtained via the Company's website at www.strholdings.com. Forward-Looking Statements This press release and any oral statement made in respect of the information in this press release contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to inherent risks and uncertainties. These forward-looking statements present the Company's current expectations and projections relating to its financial condition, results of operations, plans, objectives, future performance and business and are based on assumptions that the Company has made in light of its industry experience and perceptions of historical trends, current conditions, expected future developments and other factors management believes are appropriate under the circumstances. However, these forward-looking statements are not guarantees of future performance or financial or operating results. In addition to the risks and uncertainties discussed in this press release, the Company faces risks and uncertainties that include, but are not limited to, the following: (i) technological changes in the solar energy industry or the Company's failure to develop and introduce or integrate new technologies could render its encapsulants uncompetitive or obsolete, particularly in China; (ii) excess capacity in the solar supply chain; (iii) its ability to increase its market share; (iv) demand for solar energy in general and solar modules in particular; (v) the timing and effects of the implementation of government incentives and policies for renewable energy, primarily in China and the United States; (vi) the effects of the announced reductions to solar incentives in Germany and Italy; (vii) trade complaints and lawsuits diminishing the growth of the solar industry; (viii) the extent to which it may be required to write-off accounts receivable, inventory or intangible assets; (ix) product pricing pressures and other competitive factors; (x) customer concentration in its business and its relationships with key customers; (xi) its ability to protect its intellectual property; (xii) volatility in commodity costs, such as resin or paper used in its encapsulants, and its ability to successfully manage any increases in these commodity costs; (xiii) its dependence on a limited number of third-party suppliers for raw materials for its encapsulants and materials used in its processes; (xiv) operating new manufacturing facilities and increasing production capacity at existing facilities; (xv) its reliance on vendors and potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (xvi) potential product performance matters and product liability; (xvii) the extent and duration of the current downturn in the global economy; (xviii) the impact negative credit markets may have on the Company or its customers or suppliers; (xix) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (xx) maintaining sufficient liquidity in order to fund future profitable growth and long-term vitality; (xxi) outcomes of litigation and regulatory actions; and (xxii) the other risks and uncertainties described under “Risk Factors” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” and in subsequent periodic reports on Forms 10-K, 10-Q and 8-K. You are urged to carefully review and consider the disclosure found in the Company's filings which are available on http://www.sec.gov or http://www.strholdings.com. Should one or more of these risks or uncertainties materialize, or should any of these assumptions prove to be incorrect, actual results may vary materially from those projected in these forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statement contained in this release, whether as a result of new information, future developments or otherwise, except as may be required by law.     STR Holdings, Inc.CONDENSED CONSOLIDATED INCOME STATEMENTSAll amounts in thousands except shares and per share amounts         Three Months Ended September 30,Nine Months Ended September 30,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited)   Net sales $ 23,092 $ 56,237 $ 79,294 $ 195,892 Cost of sales   22,510     41,665     75,127     128,157     Gross profit 582 14,572 4,167 67,735   Selling, general and administrative expenses 5,844 6,838 20,298 21,666 Provision (recovery) for bad debt expense 47 (532 ) 497 509 Goodwill impairment - - 82,524 - Asset impairment   -     1,861     -     1,861   Operating (loss) income (5,309 ) 6,405 (99,152 ) 43,699   Other (expense) income   (1,070 )   (3,632 )   5,771     (3,911 ) (Loss) earnings from continuing operations before income tax (benefit) expense (6,379 ) 2,773 (93,381 ) 39,788 Income tax (benefit) expense from continuing operations   (2,800 )   (1,044 )   (5,250 )   10,739   Net (loss) earnings from continuing operations $ (3,579 ) $ 3,817 $ (88,131 ) $ 29,049   Discontinued operations: Earnings from discontinued operations before income tax (benefit) expense - 117,314 - 110,771 Income tax (benefit) expense from discontinued operations   (4,246 )   75,841     (4,246 )   73,980   Net earnings from discontinued operations $ 4,246 $ 41,473 $ 4,246 $ 36,791   Net earnings (loss) $ 667   $ 45,290   $ (83,885 ) $ 65,840     GAAP net earnings (loss) per share: Basic from continuing operations $ (0.09 ) $ 0.09   $ (2.13 ) $ 0.71   Basic from discontinued operations   0.11     1.02     0.10     0.90   Total basic GAAP net earnings (loss) per share $ 0.02   $ 1.11   $ (2.03 ) $ 1.61     Diluted from continuing operations $ (0.09 ) $ 0.09   $ (2.13 ) $ 0.69   Diluted from discontinued operations   0.11     1.00     0.10     0.88   Total diluted GAAP net earnings (loss) per share $ 0.02   $ 1.09   $ (2.03 ) $ 1.57     (1) Non-GAAP net (loss) earnings per share: Basic from continuing operations $ (0.03 ) $ 0.21   $ 0.05   $ 0.87   Basic from discontinued operations   0.11     1.05     0.10     0.97   Total basic non-GAAP net earnings per share $ 0.08   $ 1.26   $ 0.15   $ 1.84     Diluted from continuing operations $ (0.03 ) $ 0.21   $ 0.05   $ 0.85   Diluted from discontinued operations   0.11     1.04     0.10     0.94   Total diluted non-GAAP net earnings per share $ 0.08   $ 1.25   $ 0.15   $ 1.79     Weighted-average common shares outstanding: Basic shares outstanding GAAP   41,439,827     40,972,552     41,277,975     40,853,480   (2) Diluted shares outstanding GAAP   41,439,827     41,503,070     41,277,975     41,985,525   Stock options - - - - Restricted common stock   -     -     151     -   (2) Diluted shares outstanding non-GAAP   41,439,827     41,503,070     41,278,126     41,985,525     (1) Please refer to the reconciliation of non-GAAP measures included in this press release. (2) Please refer to the reconciliation of diluted shares outstanding for non-GAAP net earnings per share included in this press release.     STR Holdings, Inc.CONDENSED CONSOLIDATED BALANCE SHEETSAll amounts in thousands                 September 30, 2012December 31, 2011 (Unaudited) (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 70,625 $ 58,794 Accounts receivable, net 7,309 14,535 Inventories 13,998 28,809 Other current assets   13,419   8,168 Total current assets 105,351 110,306   Property, plant and equipment, net 67,807 63,474 Intangible assets, net 137,589 143,912 Goodwill - 82,524 Other noncurrent assets   1,077   1,875 Total assets $ 311,824 $ 402,091   LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 4,279 $ 4,647 Accrued liabilities 7,960 9,445 Income taxes payable   2,306   6,735 Total current liabilities 14,545 20,827   Deferred tax liabilities 45,116 48,585 Other long-term liabilities   2,121   2,174 Total liabilities $ 61,782 $ 71,586   STOCKHOLDERS' EQUITY Stockholders' equity   250,042   330,505 Total liabilities and stockholders' equity $ 311,824 $ 402,091     STR Holdings, Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSAll amounts in thousands                 Three Months Ended September 30,Nine Months Ended September 30,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited) OPERATING ACTIVITIES Net earnings (loss) $ 667 $ 45,290 $ (83,885 ) $ 65,840 Net earnings from discontinued operations   4,246     41,473     4,246     36,791   Net (loss) earnings from continuing operations (3,579 ) 3,817 (88,131 ) 29,049 Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities: Depreciation 2,042 2,363 6,157 6,156 Goodwill impairment - - 82,524 - Asset impairment - 1,861 - 1,861 Amortization of intangibles 2,107 2,108 6,323 6,324 Amortization of deferred financing costs 55 221 218 884 Write-off of deferred debt costs 844 3,586 844 3,586 Stock-based compensation expense 704 1,073 3,682 3,273 Loss on disposal of property, plant and equipment 2 2 2 2 Provision (recovery) for bad debt expense 47 (532 ) 497 509 Deferred income tax (benefit) expense (1,244 ) 217 (3,055 ) (363 ) Changes in operating assets and liabilities (1,961 ) 4,149 19,138 (30,574 ) Other, net   250     (1,631 )   365     356   Net cash (used in) provided by continuing operations (733 ) 17,234 28,564 21,063 Net cash used in discontinued operations   -     (8,104 )   (5,786 )   (10,056 ) Net cash (used in) provided by operating activities $ (733 ) $ 9,130   $ 22,778   $ 11,007     INVESTING ACTIVITIES Capital expenditures $ (1,052 ) $ (3,906 ) $ (10,477 ) $ (18,441 ) Proceeds from sale of fixed assets   -     1     -     1   Net cash used in continuing operations (1,052 ) (3,905 ) (10,477 ) (18,440 ) Net cash provided by discontinued operations   -     268,520     -     266,527   Net cash (used in) provided by investing activities $ (1,052 ) $ 264,615   $ (10,477 ) $ 248,087     FINANCING ACTIVITIES Net cash (used in) provided by continuing operations $ (24 ) $ (88 ) $ 1   $ 585   Net cash used in discontinued operations   -     (237,600 )   -     (238,525 ) Net cash (used in) provided by financing activities $ (24 ) $ (237,688 ) $ 1   $ (237,940 )   Effect of exchange rate changes on cash   243     (1,815 )   (471 )   1,835     Net (decrease) increase in cash and cash equivalents (1,566 ) 34,242 11,831 22,989 Cash and cash equivalents, beginning of period   72,191     95,377     58,794     106,630   Cash and cash equivalents, end of period $ 70,625   $ 129,619   $ 70,625   $ 129,619     * Free cash flow from continuing operations $ (1,785 ) $ 13,328   $ 18,087   $ 2,622     * Please refer to the reconciliation of non-GAAP measures included in this press release.     STR Holdings, Inc.RECONCILIATION OF NON-GAAP MEASURESAll amounts in thousands except shares and per share amounts             Three Months Ended September 30,Nine Months Ended September 30,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited) Non-GAAP (Loss) Earnings Per Share Net (loss) earnings from continuing operations $ (3,579 ) $ 3,817 $ (88,131 ) $ 29,049 Adjustments to net (loss) earnings from continuing operations: Amortization of intangibles 2,107 2,108 6,323 6,324 Amortization of deferred financing costs 899 3,807 1,062 4,470 Stock-based compensation expense 704 1,073 3,682 3,273 Accelerated depreciation - 356 - 356 Asset impairment - 1,861 - 1,861 Goodwill impairment - - 82,524 - Interest expense from prior credit facilities - (1,722 ) - (6,699 ) Tax effect of non-GAAP adjustments   (1,254 )   (2,539 )   (3,639 )   (3,043 ) Non-GAAP net (loss) earnings from continuing operations $ (1,123 ) $ 8,761   $ 1,821   $ 35,591     Non-GAAP net (loss) earnings per share: Basic from continuing operations $ (0.03 ) $ 0.21   $ 0.05   $ 0.87   Diluted from continuing operations $ (0.03 ) $ 0.21   $ 0.05   $ 0.85     Weighted-average common shares outstanding: Basic   41,439,827     40,972,552     41,277,975     40,853,480   (1) Diluted   41,439,827     41,503,070     41,278,126     41,985,525     (1) Please refer to the reconciliation of diluted shares outstanding for non-GAAP net (loss) earnings per share included in this press release.   Three Months Ended September 30,Nine Months Ended September 30,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited) Free Cash Flow from Continuing Operations Cash flow from operations from continuing operations $ (733 ) $ 17,234 $ 28,564 $ 21,063 Less: Capital expenditures   (1,052 )   (3,906 )   (10,477 )   (18,441 ) Free cash flow $ (1,785 ) $ 13,328   $ 18,087   $ 2,622       Non-GAAP Financial Measures To supplement the Company's condensed consolidated financial statements, which statements are prepared and presented in accordance with generally accepted accounting principles in the United States of America (GAAP), the Company uses non-GAAP financial measures to facilitate better understanding of its operating results. In this press release, there are two non-GAAP financial metrics mentioned: Non-GAAP earnings per share from continuing operations (EPS) and free cash flow from continuing operations as defined below: Non-GAAP EPS: The Company believes that non-GAAP EPS from continuing operations provides meaningful supplemental information regarding its performance by excluding certain expenses that may not be indicative of the core business operating results and may help in comparing current period results with those of prior periods as well as with its peers. Non-GAAP EPS from continuing operations is defined as net (loss) earnings from continuing operations not including the tax effected impact of deferred financing costs, stock-based compensation, intangible asset amortization expense, goodwill impairment, accelerated depreciation, asset impairment plus interest expense from prior credit facilities divided by the weighted-average common shares outstanding. Please refer to the Company's Form 10-K filed with the Securities and Exchange Commission (SEC) on March 14, 2012, for detailed discussion on these adjustments. Although the Company uses non-GAAP EPS from continuing operations as a measure to assess the operating performance of its business, non-GAAP EPS from continuing operations has significant limitations as an analytical tool because it excludes certain material costs. Because non-GAAP EPS from continuing operations does not account for these expenses, its utility as a measure of its operating performance has material limitations. Because of these limitations, the Company does not view non-GAAP EPS from continuing operations in isolation and uses other metrics to measure operating performance such as, but not limited to, net sales, gross margin, operating (loss) income, adjusted EBITDA, and net (loss) earnings from continuing operations. STR Holdings, Inc.RECONCILIATION OF NON-GAAP SHARES OUTSTANDING             Three Months Ended September 30,Nine Months Ended September 30,2012201120122011 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Weighted-average shares outstanding Basic shares outstanding GAAP 41,439,827 40,972,552 41,277,975 40,853,480 Diluted shares outstanding GAAP 41,439,827 41,503,070 41,277,975 41,985,525 Stock options - - - - Restricted common stock - - 151 - Diluted shares outstanding non-GAAP 41,439,827 41,503,070 41,278,126 41,985,525   Diluted GAAP Shares Outstanding: Due to a loss from continuing operations during the nine months ended September 30, 2012, the diluted weighted-average common shares outstanding for purposes of our diluted GAAP loss per share does not include 151 shares of unvested restricted common stock respectively, as these potential awards do not share in any loss generated by the Company and are anti-dilutive. Free Cash Flow from Continuing Operations: The Company believes free cash flow from continuing operations is an important measure of its overall liquidity and its ability to fund future growth and provide a return to shareowners. Free cash flow is defined as operating cash flow from continuing operations excluding cash spent on capital expenditures. A limitation of using free cash flow versus the GAAP measure of cash provided by operating activities as a means for evaluating the Company's business is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period. STR Holdings, Inc.Joseph C. Radziewicz, +1-860-758-7325Vice President and Chief Financial Officerjoseph.radziewicz@strholdings.com