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Press release from Business Wire

STR Holdings, Inc. Reports Fourth Quarter and Full–Year 2012 Results

Thursday, March 14, 2013

STR Holdings, Inc. Reports Fourth Quarter and Full–Year 2012 Results16:02 EDT Thursday, March 14, 2013 ENFIELD, Conn. (Business Wire) -- STR Holdings, Inc. (NYSE: STRI) today announced its financial results for the fourth quarter and full–year ended December 31, 2012. Fourth Quarter 2012 Financial Summary: Net sales of $16.1 million Diluted GAAP loss per share from continuing operations of $(2.97); Diluted non-GAAP loss per share from continuing operations of $(0.09) Free cash flow of $5.1 million Finished the quarter with $82.0 million in cash and no debt Recorded a $172.9 million non-cash long–lived asset impairment 2012 Financial Summary: Net sales of $95.3 million Diluted GAAP loss per share from continuing operations of $(5.12); Diluted non-GAAP loss per share from continuing operations of $(0.05) Free cash flow of $23.2 million Financial Results Net sales for the quarter ended December 31, 2012 were $16.1 million. This represents a decline of 30% sequentially and 56% from Q4 2011. On a sequential basis, the decline was driven primarily by a volume decline of approximately 25% and a 7% decline in average sale price (“ASP”). On a year–over–year basis, volume declined by approximately 43% and ASP declined by approximately 23%. “In the fourth quarter of 2012, solar industry dynamics remained very challenging, particularly in Western markets, 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 and commercializing innovative products. The launch of our next-generation encapsulant is progressing well with many prospects proceeding to certification and we have received commercial orders for this product from two new customers in China and one of our existing customers in Europe.” Gross profit for the fourth quarter of 2012 was $(6.0) million, or (37.5)% of sales, compared to $0.6 million, or 2.5% of sales, from the third quarter of 2012, primarily driven by $1.0 million of restructuring charges, $2.8 million of accelerated depreciation, lower ASP and unfavorable cost absorption. Selling, general and administrative expenses for the fourth quarter of 2012 were $4.3 million compared to $4.8 million in the third quarter of 2012. The reduction was driven by lower non-cash stock-based compensation expense. The Company recorded a $172.9 million non-cash long–lived asset impairment related to its intangible assets and certain fixed assets. The impairment was driven by continued pricing pressure, increased competition in the encapsulant market and the loss of First Solar, Inc. as a customer. Net loss from continuing operations for the fourth quarter of 2012 was $(123.4) million, or $(2.97) per diluted share. This compares to a net loss from continuing operations of $(3.6) million, or $(0.09) per diluted share, for the third quarter of 2012 and net loss from continuing operations of $(68.5) million, or $(1.67) per diluted share, for the fourth quarter of 2011. Non–GAAP net loss from continuing operations for the fourth 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 $(3.7) million, or $(0.09) per diluted share. This compares to non–GAAP net loss from continuing operations of $(1.1) million, or $(0.03) per diluted share, for the third quarter of 2012 and non–GAAP net loss from continuing operations of $1.9 million, or $(0.05) per diluted share, for the fourth quarter of 2011. Balance Sheet and Liquidity During the fourth quarter of 2012, the Company generated operating cash flow from continuing operations of $5.3 million primarily due to the receipt of income tax refunds and working capital benefit. Free cash flow from continuing operations was $5.1 million during the fourth quarter of 2012. The Company finished 2012 with $82.0 million of cash and no debt. Guidance The Company today provided guidance for the first quarter and full–year 2013 as follows:         STR Holdings, Inc.Business Outlook   Amounts in millions, except per share amounts   Quarter ending March 31, 2013     Low     High Net sales $ 9.0 $ 10.0 Diluted non-GAAP EPS $ (0.10 ) $ (0.08 ) Ending Cash Balance $ 77.0 $ 79.0     Year ending December 31, 2013     Low     High Net sales $ 45.0 $ 55.0 Diluted non-GAAP EPS $ (0.25 ) $ (0.15 ) Free cash flow $ (7.0 ) $ (4.0 ) Ending cash balance $ 75.0 $ 78.0   Subsequent to the first quarter of 2013, the Company will only provide annual guidance for sales, non–GAAP EPS, free cash flow and its ending cash balance. The Company will no longer provide quarterly guidance for sales and non–GAAP EPS. Fourth 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) 362-4832 and enter passcode: 49630401. Those calling from outside the U.S. should dial (617) 597-5364 and use the same passcode. A telephone replay will be available approximately two hours after the call concludes through Thursday, March 21, 2013, by dialing (888) 286-8010 from the U.S., or (617) 801-6888 from international locations, and entering passcode: 89541287. The webcast and presentation will be archived on the Company's website for one year. About STR Holdings, Inc. STR Holdings, Inc. is a global provider of 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: (1) customer concentration in our business and our relationships with and dependence on key customers; (2) technological changes in the solar energy industry or our failure to develop and introduce or integrate new technologies could render our encapsulants uncompetitive or obsolete, particularly in China; (3) our ability to increase our market share; (4) product pricing pressures and other competitive factors; (5) excess capacity in the solar supply chain; (6) the extent to which we may be required to write–off accounts receivable, inventory or other assets; (7) trade complaints and lawsuits diminishing the growth of the solar industry; (8) demand for solar energy in general and solar modules in particular; (9) the extent and duration of the current downturn in the global economy; (10) the impact negative credit markets may have on us or our customers or suppliers; (11) the timing and effects of the implementation of government incentives and policies for renewable energy, primarily in China and the United States; (12) the effects of the announced reductions to solar incentives in Germany and Italy; (13) operating new manufacturing facilities and increasing production capacity at existing facilities; (14) volatility in commodity costs, such as resin or paper used in our encapsulants, and our ability to successfully manage any increases in these commodity costs; (15) our dependence on a limited number of third–party suppliers for raw materials for our encapsulants and materials used in our processes; (16) our reliance on vendors and potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (17) potential product performance matters and product liability; (18) our ability to protect our intellectual property; (19) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (20) maintaining sufficient liquidity in order to fund future profitable growth and long–term vitality; (21) outcomes of litigation and regulatory actions; and (22) 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 our 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. We undertake 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 December 31,Twelve Months Ended December 31,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited)   Net sales $ 16,051 $ 36,539 $ 95,345 $ 232,431 Cost of sales   22,066     32,289     97,193     160,446     Gross profit (6,015 ) 4,250 (1,848 ) 71,985   Selling, general and administrative expenses 4,302 7,635 21,345 27,832 Research and development expense 1,116 1,093 4,371 2,562 (Recovery) Provision for bad debt expense (11 ) (130 ) 486 379 Goodwill impairment - 63,948 82,524 63,948 Intangible asset impairment 135,480 - 135,480 - Asset impairment   37,431     -     37,431     1,861   Operating (loss) income (184,333 ) (68,296 ) (283,485 ) (24,597 )   Other (expense) income, net   (125 )   (247 )   5,646     (4,158 ) Loss from continuing operations before income tax (benefit) expense (184,458 ) (68,543 ) (277,839 ) (28,755 ) Income tax (benefit) expense from continuing operations   (61,014 )   (66 )   (66,264 )   10,673   Net loss from continuing operations $ (123,444 ) $ (68,477 ) $ (211,575 ) $ (39,428 )   Discontinued operations: Earnings from discontinued operations before income tax expense (benefit) - 2,741 - 113,512 Income tax expense (benefit) from discontinued operations   18     1,408     (4,228 )   75,388   Net (loss) earnings from discontinued operations $ (18 ) $ 1,333 $ 4,228 $ 38,124   Net loss earnings $ (123,462 ) $ (67,144 ) $ (207,347 ) $ (1,304 )   GAAP net (loss) per share: Basic from continuing operations $ (2.97 ) $ (1.67 ) $ (5.12 ) $ (0.96 ) Basic from discontinued operations   -     0.04     0.10     0.93   Total basic GAAP net (loss) per share $ (2.97 ) $ (1.63 ) $ (5.02 ) $ (0.03 )   Diluted from continuing operations $ (2.97 ) $ (1.67 ) $ (5.12 ) $ (0.96 ) Diluted from discontinued operations   -     0.04     0.10     0.93   Total diluted GAAP net (loss) per share $ (2.97 ) $ (1.63 ) $ (5.02 ) $ (0.03 )   (1) Non-GAAP net (loss) earnings per share: Basic from continuing operations $ (0.09 ) $ (0.05 ) $ (0.05 ) $ 0.82   Basic from discontinued operations   -     0.04     0.11     1.00   Total basic non-GAAP net (loss) earnings per share $ (0.09 ) $ (0.01 ) $ 0.06   $ 1.82     Diluted from continuing operations $ (0.09 ) $ (0.05 ) $ (0.05 ) $ 0.80   Diluted from discontinued operations   -     0.04     0.11     0.98   Total diluted non-GAAP net (loss) earnings per share $ (0.09 ) $ (0.01 ) $ 0.06   $ 1.78     Weighted-average common shares outstanding: Basic shares outstanding GAAP   41,526,822     41,083,830     41,314,608     40,886,022   (2) Diluted shares outstanding GAAP   41,526,822     41,083,830     41,314,608     40,886,022   Stock options - - - 543,088 Restricted common stock   -     -     -     397,641   (2) Diluted shares outstanding non-GAAP   41,526,822     41,083,830     41,314,608     41,826,751     (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   December 31, 2012December 31, 2011 (Unaudited) (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 81,985 $ 58,794 Accounts receivable, net 5,316 14,535 Inventories 8,585 28,809 Other current assets   10,732   8,168 Total current assets 106,618 110,306   Property, plant and equipment, net 27,750 63,474 Intangible assets, net - 143,912 Goodwill - 82,524 Other noncurrent assets   12,796   1,875 Total assets $ 147,164 $ 402,091   LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,893 $ 4,647 Accrued liabilities 10,376 9,445 Income taxes payable   917   1,058 Total current liabilities 14,186 15,150   Deferred tax liabilities - 48,585 Other long-term liabilities   5,539   7,851 Total liabilities $ 19,725 $ 71,586   STOCKHOLDERS' EQUITY Stockholders' equity   127,439   330,505 Total liabilities and stockholders' equity $ 147,164 $ 402,091                 STR Holdings, Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSAll amounts in thousands   Three Months Ended December 31,Twelve Months Ended December 31,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited) OPERATING ACTIVITIES Net loss $ (123,462 ) $ (67,144 ) $ (207,347 ) $ (1,304 ) Net loss (earnings) from discontinued operations   18     (1,333 )   (4,228 )   (38,124 ) Net loss from continuing operations (123,444 ) (68,477 ) (211,575 ) (39,428 ) Adjustments to reconcile net loss to net cash provided by  (used in) operating activities: Depreciation 5,098 2,037 11,255 8,193 Goodwill impairment - 63,948 82,524 63,948 Intangible asset impairment 135,480 - 135,480 - Asset impairment 37,431 - 37,431 1,861 Amortization of intangibles 2,109 2,108 8,432 8,432 Amortization of deferred financing costs 17 82 235 966 Write-off of deferred debt costs on early extinguishment of debt - - 844 3,586 Stock-based compensation expense (188 ) 1,163 3,494 4,436 (Gain) loss on disposal of property, plant and equipment - (37 ) 2 (35 ) (Recovery) Provision for bad debt expense (11 ) (130 ) 486 379 Deferred income tax benefit (57,139 ) (4,338 ) (60,194 ) (4,701 ) Changes in operating assets and liabilities 6,568 29,353 25,706 (1,221 ) Other, net   (603 )   46     (238 )   402   Net cash provided by continuing operations 5,318 25,755 33,882 46,818 Net cash provided by (used in) discontinued operations   5,754     (99,285 )   (32 )   (109,341 ) Net cash provided by (used in) operating activities $ 11,072   $ (73,530 ) $ 33,850   $ (62,523 )   INVESTING ACTIVITIES Capital expenditures $ (200 ) $ (3,096 ) $ (10,677 ) $ (21,537 ) Proceeds from sale of fixed assets   -     42     -     43   Net cash used in continuing operations (200 ) (3,054 ) (10,677 ) (21,494 ) Net cash provided by discontinued operations   -     7,827     -     274,354   Net cash (used in) provided by investing activities $ (200 ) $ 4,773   $ (10,677 ) $ 252,860     FINANCING ACTIVITIES Net cash used in continuing operations $ (3 ) $ (1,306 ) $ (2 ) $ (721 ) Net cash used in discontinued operations   -     -     -     (238,525 ) Net cash used in financing activities $ (3 ) $ (1,306 ) $ (2 ) $ (239,246 )   Effect of exchange rate changes on cash   491     (762 )   20     1,073     Net increase (decrease) in cash and cash equivalents 11,360 (70,825 ) 23,191 (47,836 ) Cash and cash equivalents, beginning of period   70,625     129,619     58,794     106,630   Cash and cash equivalents, end of period $ 81,985   $ 58,794   $ 81,985   $ 58,794     * Free cash flow from continuing operations $ 5,118   $ 22,659   $ 23,205   $ 25,281     * 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 December 31,Twelve Months Ended December 31,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited) Non-GAAP (Loss) Earnings Per Share Net loss from continuing operations $ (123,444 ) $ (68,477 ) $ (211,575 ) $ (39,428 ) Adjustments to net loss from continuing operations: Amortization of intangibles 2,109 2,108 8,432 8,432 Amortization of deferred financing costs 17 82 1,079 4,552 Stock-based compensation expense (188 ) 1,163 3,494 4,436 Restructuring costs 1,069 308 1,069 308 Accelerated depreciation 2,819 156 2,819 512 Asset impairment 37,431 - 37,431 1,861 Goodwill impairment - 63,948 82,524 63,948 Intangible asset impairment 135,480   -   135,480 - Interest expense from prior credit facilities - - - (6,699 ) Tax effect of non-GAAP adjustments   (59,010 )   (1,236 )   (62,649 )   (4,279 ) Non-GAAP net (loss) earnings from continuing operations $ (3,717 ) $ (1,948 ) $ (1,896 ) $ 33,643     Non-GAAP net (loss) earnings per share: Basic from continuing operations $ (0.09 ) $ (0.05 ) $ (0.05 ) $ 0.82   Diluted from continuing operations $ (0.09 ) $ (0.05 ) $ (0.05 ) $ 0.80     Weighted-average common shares outstanding: Basic   41,526,822     41,083,830     41,314,608     40,886,022   (1) Diluted   41,526,822     41,083,830     41,314,608     41,826,751     (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 December 31,Twelve Months Ended December 31,   2012     2011     2012     2011   (Unaudited) (Unaudited) (Unaudited) (Unaudited) Free Cash Flow from Continuing Operations Cash flow from operations from continuing operations $ 5,318 $ 25,755 $ 33,882 $ 46,818 Less: Capital expenditures   (200 )   (3,096 )   (10,677 )   (21,537 ) Free cash flow $ 5,118   $ 22,659   $ 23,205   $ 25,281     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, intangible asset impairment, restructuring, 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 some of these adjustments that have been recorded in previous periods. During the current period, the Company has included intangible and long–lived asset impairment charges as adjustments in arriving at its non–GAAP EPS. Information regarding these items is set forth below: Intangible and long–lived asset impairment: In December 2012, the Company recorded an intangible and long–lived asset impairment of $135.5 million and $37.4 million, respectively, attributable to the decline in its expected profitability, the recent loss of its largest customer and the valuation of its common stock. The Company is excluding these items because it believes they are not reflective of the operational conditions of its core business, they are non–cash, and may be helpful in comparing its current period results with those of prior periods as well as with the Company's peers. 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 December 31,Twelve Months Ended December 31,2012201120122011 (Unaudited) (Unaudited) (Unaudited) (Unaudited) Weighted–average shares outstanding Basic shares outstanding GAAP 41,526,822 41,083,830 41,314,608 40,886,022 Diluted shares outstanding GAAP 41,526,822 41,083,830 41,314,608 40,886,022 Stock options - - - 543,088 Restricted common stock - - - 397,641 Diluted shares outstanding non–GAAP 41,526,822 41,083,830 41,314,608 41,826,751   Diluted GAAP Shares Outstanding: Due to a loss from continuing operations during the year ended December 31, 2012, the diluted weighted–average common shares outstanding for purposes of our diluted GAAP loss per share does not include 161 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. Due to a loss from continuing operations during the quarter and year ended December 31, 2011, the diluted weighted–-average common shares outstanding for purposes of its diluted GAAP loss per share (EPS) does not include 4,489 of stock options, 167,542 of restricted common stock, 543,088 of stock options and 397,641 of restricted common stock, respectively, as these potential awards do not share in any loss generated by the Company and are anti–dilutive. Diluted non–GAAP shares outstanding: Due to a non-GAAP net loss from continuing operations during the quarter ended December 31, 2011, the weighted-average common shares outstanding for the purposes of its non-GAAP EPS does not include 4,489 of stock options and 167,542 of restricted common stock 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