13.11.13

STR Holdings Inc: 3rd. Quarter 2013 Results and Strategic Plan

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Enfield, Connecticut - STR Holdings, Inc. (NYSE:STRI) today announced its financial results for the third quarter of 2013 and provided an update on its business and its strategic plan.

 Third Quarter 2013 Financial Summary:
Net sales of $6.2 millionInitial next-generation EVA encapsulant sales of $2.7 million
Diluted GAAP loss per share from continuing operations of $(0.14); Diluted non-GAAP loss per share from continuing operations of $(0.12) which included an unfavorable income tax impact of ($0.04)
- Finished the quarter with $62.2 million in cash and no debt>
- Strategy Update

Last quarter, the Company announced that its next-generation EVA encapsulant product launch was delayed due to feedback from some prospective customers that a feature of its product was not optimally matched to their lamination process. During the third quarter, the Company refined its next-generation encapsulant to broaden its process window. Following favorable results from subsequent customer evaluations, the Company has delivered production-scale orders of its next-generation encapsulants to certain module manufacturers, including certain of its China Tier One module manufacturer prospects. The Company has also received repeat orders for its next-generation products and is seeking production-scale orders from Chinese module manufacturers during the fourth quarter of 2013.
>
> Since the Company's product launch was delayed, and in order to conserve cash, the Company has idled the renovation of its leased facility in China. However, to meet anticipated demand for its next-generation products, the Company will seek to outsource the production of its next-generation encapsulant to one or more China-based manufacturers.
>
> Closing of Malaysian Facility and Other Cost-Reduction Efforts
>
> In light of the continued shift in module manufacturing to mainland China, and the requirement within this growing market for just-in-time delivery, the Company intends to cease production at its Johor, Malaysia facility by the end of the first quarter of 2014. The Company expects to incur approximately $0.5 to $0.7 million of associated non-recurring cost during the fourth quarter of 2013 and further expects to generate approximately $2.0 million of associated annual pre-tax savings.
>
> During the third quarter of 2013, the Company reduced its headcount at its Connecticut facilities. The Company incurred $0.3 million of related severance expense, and is expected to generate approximately $1.3 million of associated annual pre-tax savings. In October 2013, the Company also streamlined its operations and eliminated the positions of Chief Operating Officer, Vice President of Human Resources, Chief Technology Officer and Vice President of Finance, effective November 15, 2013, transferring responsibilities to others in the organization. The Company expects to incur approximately $0.8 million of related severance and other benefits during the fourth quarter of 2013 and further expects to generate approximately $1.1 million of associated annual pre-tax savings.
>
> On-Going Assessment of Our Business and Strategic Alternatives
>
> The Company is actively monitoring and evaluating its short-term financial and operational performance, including sales levels for new products and its ability to enter into satisfactory outsource arrangements with China-based manufacturers. In addition, the Company's Strategic Transaction Committee, together with its independent advisors and the Company's senior management team, continues to actively review, analyze and make recommendations to the STR Board of Directors regarding potential strategic alternatives. For additional information and a discussion of related risks and uncertainties, please see our filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.
>
> Financial Results
>
> Net sales for the quarter ended September 30, 2013 were $6.2 million of which $2.7 million related to initial sales of our next—generation EVA encapsulant to new and existing customers. This represents a decline of approximately 20% sequentially and 73% from Q3 2012. On a year-over-year basis, volume declined in the third quarter of 2013 by approximately 64% and our average sale price ("ASP") declined by approximately 19%. On a sequential basis, the decrease was driven by a volume decline of approximately 13% and a 7% decrease in ASP. The decline in sales volume was mainly due to the final scale down of First Solar as a customer and one of the Company's largest customers filed an insolvency petition in July 2013. As such, shipments were reduced to this customer as it restarted production towards the end of the third quarter of 2013. These negative impacts more than offset initial net sales generated from the Company's next-generation EVA encapsulant to new customers.
>
> Gross profit for the third quarter of 2013 was a loss of $(0.8) million, or (13.2)% of sales, compared to $0.4 million, or 4.6% of sales, for the second quarter of 2013. Gross profit as a percentage of net sales decreased for the three-month period ended September 30, 2013, compared to the three-month period ended June 30, 2013, mainly as a result of a 7% ASP decrease and lower absorption of fixed costs allocated with the sales volume decline.
>
> Selling, general and administrative expenses for the third quarter of 2013 were $4.6 million compared to $4.3 million in the second quarter of 2013. The increase was driven by a $0.4 million increase in restructuring charges and a $0.3 million increase in professional fees. These increases were offset by a $0.2 million decrease in non-cash, stock-based compensation and benefits from recent cost—reduction efforts.
>
> Net loss from continuing operations for the third quarter of 2013 was $(5.9) million, or $(0.14) per diluted share. This compares to a net loss from continuing operations of $(4.5) million, or $(0.11) per diluted share, for the second quarter of 2013 and a net loss from continuing operations of $(3.6) million, or $(0.09) per diluted share, for the third quarter of 2012.
>
> Non-GAAP net loss from continuing operations for the third quarter of 2013, which excludes certain tax-effected adjustments (as disclosed following the non-GAAP reconciliation table at the end of this press release), was $(5.1) million, or $(0.12) per diluted share. The Company recorded a $(0.04) negative impact in the third quarter of 2013 relating to its projected annual effective tax rate due to lower-than-anticipated profitability at its Malaysia facility where it possess a tax holiday. This compares to non-GAAP net loss from continuing operations of $(3.9) million, or $(0.09) per diluted share, for the second quarter of 2013 and non-GAAP net loss from continuing operations of $(1.1) million, or $(0.03) per diluted share, for the third quarter of 2012.
>
> Liquidity
>
> The Company finished the quarter with $62.2 million of cash and no debt. During the third quarter of 2013, the Company's cash balance was reduced by $10.0 million primarily due to negative EBITDA and a $4.9 million negative working capital impact, primarily associated with the delay of its next-generation encapsulant product launch. As of September 30, 2013, the Company believes it has sufficient inventory to execute its product launch and expects to recover its working capital investment as it fulfills anticipated customer orders.
>
> As of September 30, 2013, the Company also had $9.6 million of income tax receivables, of which approximately $7.0 million relates to income tax returns filed in 2012.
>
> Guidance
>
> As a reminder and as disclosed on its last conference call, the Company is no longer providing quarterly and annual guidance for sales, non-GAAP EPS or cash.
>
> Third Quarter Conference Call and Presentation
>
> Due to continued cost-reduction efforts, the Company will not host a quarterly conference call. The Company will continue to report its financial results and other events in the normal course of filing its Form 10-K, 10-Q and 8-K's with the Securities and Exchange Commission.
>
> 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.strsolar.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) the potential impact of pursuing strategic alternatives; (2) the potential impact of any merger or acquisition transactions or the dissolution and liquidation of our Company; (3) our potential inability to obtain satisfactory orders from Chinese module manufacturers for our new encapsulant products or to enter into satisfactory outsource arrangements with China-based encapsulant manufacturers on a timely basis or at all; (4) customer concentration in our business and our relationships with and dependence on key customers; (5) 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; (6) incurring losses for the foreseeable future; (7) our operations being subject to political and economic uncertainties in China; (8) limited legal recourse in China if disputes arise; (9) the potential inability to protect our intellectual property during the outsourcing of our products; (10) our ability to increase our market share; (11) product pricing pressures and other competitive factors; (12) excess capacity in the solar supply chain; (13) the extent to which we may be required to write off accounts receivable, inventory or other assets; (14) trade complaints and lawsuits diminishing the growth of the solar industry; (15) demand for solar energy in general and solar modules in particular; (16) the extent and duration of the current downturn in the global economy; (17) the impact negative credit markets may have on us or our customers or suppliers; (18) the timing and effects of the implementation of government incentives and policies for renewable energy, primarily in China and the United States; (19) the effects of the announced reductions to solar incentives in Germany and Italy; (20) operating new manufacturing facilities and increasing production capacity at existing facilities; (21) 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; (22) our dependence on a limited number of third-party suppliers for raw materials for our encapsulants and materials used in our processes; (23) our reliance on vendors and potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (24) potential product performance matters and product liability; (25) our ability to protect our intellectual property; (26) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (27) maintaining sufficient liquidity in order to fund future profitable growth and long-term vitality; (28) outcomes of litigation and regulatory actions; and (29) 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.strsolar.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 STATEMENTS
> All amounts in thousands except shares and per share amounts
>                         
>       Three Months Ended September 30,     Nine Months Ended September 30,
>       2013     2012     2013     2012
>        (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)
>                         
> Net sales      $ 6,219      $ 23,092      $ 25,189      $ 79,294
> Cost of sales      7,040      22,510      26,352      75,127
>                         
> Gross (loss) profit      (821)      582      (1,163)      4,167
>                         
> Selling, general and administrative expenses      4,570      4,781      13,012      17,044
> Research and development expense      703      1,063      2,316      3,254
> (Recovery) provision for bad debt expense      (138)      47      2,100      497
> Goodwill impairment      --      --       --      82,524
> Operating loss      (5,956)      (5,309)      (18,591)      (99,152)
>                         
> Other (loss) income      (246)      (1,070)      (390)      5,771
> Loss from continuing operations before income tax benefit      (6,202)      (6,379)      (18,981)      (93,381)
> Income tax benefit from continuing operations      (268)      (2,800)      (4,346)      (5,250)
> Net loss from continuing operations      (5,934)      (3,579)      (14,635)      (88,131)
>                         
> Discontinued operations:                       
> Earnings from discontinued operations before income tax expense      --      --      --      --
> Income tax expense from discontinued operations      --      (4,246)      --      (4,246)
> Net earnings from discontinued operations      --      4,246      --      4,246
>                         
> Net (loss) earnings       $ (5,934)      $ 667      $ (14,635)      $ (83,885)
>                         
> GAAP net (loss) earnings per share:                       
> Basic from continuing operations      $ (0.14)      $ (0.09)      $ (0.35)      $ (2.13)
> Basic from discontinued operations      $ --      $ 0.11      $ --      $ 0.10
> Total basic GAAP net (loss) earnings per share      $ (0.14)      $ 0.02      $ (0.35)      $ (2.03)
>                         
> Diluted from continuing operations      $ (0.14)      $ (0.09)      $ (0.35)      $ (2.13)
> Diluted from discontinued operations      $ --      $ 0.11      $ --      $ 0.10
> Total diluted GAAP net (loss) earnings per share      $ (0.14)      $ 0.02      $ (0.35)      $ (2.03)
>                         
> (1) Non-GAAP net (loss) earnings per share:                       
> Basic from continuing operations      $ (0.12)      $ (0.03)      $ (0.29)      $ 0.05
> Basic from discontinued operations      $ --      $ 0.11      $ --      $ 0.10
> Total basic non-GAAP net (loss) earnings per share      $ (0.12)      $ 0.08      $ (0.29)      $ 0.15
>                         
> Diluted from continuing operations      $ (0.12)      $ (0.03)      $ (0.29)      $ 0.05
> Diluted from discontinued operations      $ --      $ 0.11      $ --      $ 0.10
> Total diluted non-GAAP net (loss) earnings per share      $ (0.12)      $ 0.08      $ (0.29)      $ 0.15
>                         
> Weighted-average common shares outstanding:                       
> Basic shares outstanding GAAP      41,695,010      41,439,827      41,598,103      41,277,975
> (2) Diluted shares outstanding GAAP      41,695,010      41,439,827      41,598,103      41,277,975
> Stock options      --      --      --      --
> Restricted common stock      --      --      --      151
> (2) Diluted shares outstanding non-GAAP      41,695,010      41,439,827      41,598,103      41,278,126
>                         
> (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 (loss) earnings per share included in this press release.
>  
>  
> STR Holdings, Inc.
> CONDENSED CONSOLIDATED BALANCE SHEETS
> All amounts in thousands
>             
>       September 30, 2013     December 31, 2012
>        (Unaudited)       (Unaudited)
> ASSETS           
> CURRENT ASSETS           
> Cash and cash equivalents      $ 62,249      $ 81,985
> Accounts receivable, net      2,983      5,316
> Inventories, net      10,661      8,585
> Other current assets      13,538      10,732
> Total current assets      89,431      106,618
>             
> Property, plant and equipment, net      28,669      27,750
> Other noncurrent assets      13,688      12,796
> Total assets      $ 131,788      $ 147,164
>             
> LIABILITIES AND STOCKHOLDERS' EQUITY           
> CURRENT LIABILITIES           
> Accounts payable      $ 3,124      $ 2,893
> Accrued liabilities      7,401      10,376
> Other current liabilities      747      --
> Income taxes payable      848      917
> Total current liabilities      12,120      14,186
>             
>  Long-term liabilities      4,819      5,539
> Total liabilities      16,939      19,725
>             
> STOCKHOLDERS' EQUITY           
> Stockholders' equity      114,849      127,439
> Total liabilities and stockholders' equity      $ 131,788      $ 147,164
>  
>  
> STR Holdings, Inc.
> CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
> All amounts in thousands
>                         
>       Three Months Ended September 30,     Nine Months Ended September 30,
>       2013     2012     2013     2012
>        (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)
> OPERATING ACTIVITIES                       
> Net (loss) earnings      $ (5,934)      $ 667      $ (14,635)      $ (83,885)
> Net earnings from discontinued operations      --       4,246      --       4,246
> Net loss from continuing operations      (5,934)      (3,579)      (14,635)      (88,131)
> Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:                       
> Depreciation       487      2,042      1,503      6,157
> Goodwill impairment      --      --      --      82,524
> Amortization of intangibles      --      2,107      --      6,323
> Amortization of deferred financing costs      12      55      46      218
> Write-off of deferred debt costs      143      844      143      844
> Stock-based compensation expense      563      704      1,677      3,682
> Loss on disposal of property, plant and equipment      --      2      --      2
> (Recovery) provision for bad debt expense      (138)      47      2,100      497
> Deferred income tax (benefit)      (125)      (1,244)      (187)      (3,055)
> Changes in operating assets and liabilities      (4,859)      (1,961)      (9,462)      19,138
> Other, net      12      250      310      365
> Net cash (used in) provided by continuing operations      (9,839)      (733)      (18,505)      28,564
> Net cash provided by (used in) discontinued operations      --      --      834      (5,786)
> Total net cash (used in) provided by operating activities      (9,839)      (733)      (17,671)      22,778
>                         
> INVESTING ACTIVITIES                       
> Capital expenditures      (402)      (1,052)      (2,159)      (10,477)
> Net cash used in continuing operations      (402)      (1,052)      (2,159)      (10,477)
> Net cash used in discontinued operations      --      --      --      --
> Total net cash used in investing activities      (402)      (1,052)      (2,159)      (10,477)
>                         
> FINANCING ACTIVITIES                       
> Net cash provided by (used in) continuing operations      4      (24)      18      1
> Net cash used in discontinued operations      --      --      --      --
> Total net cash provided by (used in) financing activities      4      (24)      18      1
>                         
> Effect of exchange rate changes on cash      213      243      76      (471)
>                         
> Net change in cash and cash equivalents       (10,024)      (1,566)      (19,736)      11,831
> Cash and cash equivalents, beginning of period      72,273      72,191      81,985      58,794
> Cash and cash equivalents, end of period      $ 62,249      $ 70,625      $ 62,249      $ 70,625
>                         
> * Free cash flow from continuing operations      $ (10,241)      $ (1,785)      $ (20,664)      $ 18,087
>                         
> * Please refer to the reconciliation of non-GAAP measures included in this press release.
>  
>  
> STR Holdings, Inc.
> RECONCILIATION OF NON-GAAP MEASURES
> All amounts in thousands except shares and per share amounts
>                         
>       Three Months Ended September 30,     Nine Months Ended September 30,
>       2013     2012     2013     2012
>        (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)
> Non-GAAP (Loss) Earnings Per Share                       
> Net loss from continuing operations      $ (5,934)      $ (3,579)      $ (14,635)      $ (88,131)
> Adjustments to net loss from continuing operations:                       
> Amortization of intangibles      --      2,107      --       6,323
> Amortization of deferred financing costs      155      899      189      1,062
> Stock-based compensation expense      563      704      1,677      3,682
> Restructuring       491      --      2,155      --
> Goodwill impairment      --      --      --       82,524
> Tax effect of non-GAAP adjustments      (397)      (1,254)      (1,328)      (3,639)
> Non-GAAP net (loss) earnings from continuing operations      $ (5,122)      $ (1,123)      $ (11,942)      $ 1,821
>                         
> Non-GAAP net (loss) earnings per share:                       
> Basic from continuing operations      $ (0.12)      $ (0.03)      $ (0.29)      $ 0.05
> Diluted from continuing operations      $ (0.12)      $ (0.03)      $ (0.29)      $ 0.05
>                         
> Weighted-average common shares outstanding:                       
> Basic      41,695,010      41,439,827      41,598,103      41,277,975
> (1) Diluted      41,695,010      41,439,827      41,598,103      41,278,126
>                         
> (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,
>       2013     2012     2013     2012
>        (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)
> Free Cash Flow from Continuing Operations                       
> Cash flow (used in) provided by operations from continuing operations      $ (9,839)      $ (733)      $ (18,505)      $ 28,564
> Less:                       
> Capital expenditures      (402)      (1,052)      (2,159)      (10,477)
> Free cash flow      $ (10,241)      $ (1,785)      $ (20,664)      $ 18,087
>
> 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 (loss) 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, restructuring and goodwill impairment 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 15, 2013, as well as prior SEC filings, for detailed discussion on some of these adjustments that have been recorded in previous periods.
>
> 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,
       2013     2012     2013     2012
        (Unaudited)       (Unaudited)       (Unaudited)       (Unaudited)
Weighted-average shares outstanding                        
Basic shares outstanding GAAP      41,695,010      41,439,827      41,598,103      41,277,975
 Diluted shares outstanding GAAP      41,695,010      41,439,827      41,598,103      41,277,975
 Stock options      --       --       --       --
 Restricted common stock      --       --       --       151
 Diluted shares outstanding non-GAAP      41,695,010      41,439,827      41,598,103      41,278,126

Diluted GAAP shares outstanding: Due to the loss from continuing operations for the three and nine months ended September 30, 2013, diluted weighted-average common shares outstanding for purposes of our diluted GAAP loss per share does not include 83 and 153 shares of unvested restricted common stock respectively, as these potential awards do not share in any net loss generated by the Company and are anti-dilutive.
>
> 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.
>
> Diluted non-GAAP Shares Outstanding: Due to a net loss from continuing operations during the three and nine months ended September 30, 2013, the diluted weighted-average common shares outstanding for purposes of its diluted GAAP loss per share does not include 83 and 153 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 invested for 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.
 CONTACT: STR Holdings, Inc.

Joseph C. Radziewicz
Vice President and Chief Financial Officer
+1 (860) 758-7325
joseph.radziewicz@strholdings.com
STR Holdings, Inc.
1699 King Street , Enfield, CT 06082
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