Fourth Quarter 2012 Earnings Conference Call. March 14, 2013

Transcription

1 Fourth Quarter 2012 Earnings Conference Call March 14,

2 Safe Harbor Statement This presentation contains forward looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, including with respect to our guidance. These statements relate to future events or to future financial performance and involve known and unknown risks, uncertainties, and other factors that may cause our actual results, levels of activity, performance, or achievements to be materially different from any future results, levels of activity, performance, or achievements expressed or implied by these forward looking statements. In some cases, you can identify forward looking statements by the use of words such as may, could, expect, intend, plan, seek, anticipate, believe, estimate, predict, potential, or continue or the negative of these terms or other comparable terminology. You should not place undue reliance on forward looking statements because they involve known and unknown risks, uncertainties and other factors that are, in some cases, beyond our control and that could materially affect actual results, levels of activity, performance, or achievements. Other factors that could materially affect actual results, levels of activity, performance or achievements can be found in STR Holdings Form 10 K filed on March 14, 2012 with the SEC, as well as in subsequent periodic SEC filings. If any of these risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary significantly from what we projected. Any forward looking statement you see or hear during this presentation reflects our current views with respect to future events and is subject to these and other risks, uncertainties, and assumptions relating to our operations, results of operations, growth strategy, and liquidity. We assume no obligation to publicly update or revise these forward looking statements for any reason, whether as a result of new information, future events, or otherwise, except as required by law. 1

3 Strategy Review Robert S. Yorgensen, President and Chief Executive Officer 2

4 Response to Loss of First Solar Account Operations: Cease Connecticut production Global headcount reductions in 2013 ~160 employees $1.8MM severance $8.0MM annual pre tax savings Assessing sale leaseback, sub lease of East Windsor facility Communications: Global customer outreach U.S. customer base transition plan Employees Supply chain Investors Other stakeholders 3

5 Strategic Imperatives Cost Reduction Next Gen EVA Launch Strong Balance Sheet Product Innovation 4

6 Cost Reduction 2013 Estimated Savings 2013 Targets $19.0 Variable cost per unit ~20% Fixed costs ~$4.5MM Average Resin price ~10% $6.5 $6.0 Paperless sales mix ~40% $2.5 In millions $4.0 Manufacturing Labor Manufacturing Overhead Raw Materials SG&A/R&D Total Q Actions Continued labor rationalization i 78 employees Annual pre-tax savings of $4.3MM Continued SG&A reduction efforts Travel Service provider fees ~$0.2MM additional cost savings Labor Overhead In millions 2012 Year to Date Realized Savings $18.2 $6.5 $5.3 $4.2 $2.2 Manufacturing Manufacturing Raw Materials SG&A Total 5

7 Next Generation EVA Product Introduction Product attributes: Wider processing window High UV light transmission i Excellent PID resistance Superior dimensional stability High volume resistivity Long term optical performance Fast curing Paperless Encap. Grade Power Loss After Damp Heat 1,000 Hr (% Chng) 2,000 Hr (% Chng) 3,000 Hr (% Chng) STR Next Gen 0.7% 0.2% 0.1% STR Next Gen 0.3% 1.2% 0.6% Q4 Milestones: 3,000 hrs of internal ldamp heat testing completed Shipped first commercial orders to 2 new Chinese customers Competitor B 0.2% 0.7% 0.5% Competitor B 0.2% 0.8% 0.0% Competitor C C 0.6% 0.6% 32% Competitor C 0.4% 0.5% 26% 6

8 Next Generation EVA Product Introduction Electroluminescence Images after 3,000 Damp Heat Hours STR Next Gen EVA Competitor Material Samples with all China Tier 1 0 Hrs 3,000 Hrs 0 Hrs 3,000 Hrs 7

9 Next Generation EVA Product Introduction Initial commercial orders received from Chinese customers! STR Local Chinese Manufacturing ~$2.0MM of CapEx Samples with all China Tier 1 Local manufacturing in China to commence in Q

10 Product Innovation Footprint POE Benefits 2011 Low moisture vapor transmission Improved thermal stability at very high temperatures PID resistant Changshu, China STR POE Development Asian customer selects STR s formulation Passed 3,000 hrs damp heat Process engineering currently optimizing production methodology East Windsor, Connecticut Asturias, Spain State of the Art R&D facility $0.4 $0.7 R&D Expense $1.8 Johor, Malaysia Technical service labs $2.6 $

11 Strategy Execution Full range of options being considered New Products are roadmap to the future Next-Gen EVA attracting new customers - commercial sales underway POE development continues with significant customer interest R&D Lab New Products i i cost and d Competitive performance >2 GW equipment upgrades ready mid mid2013 Low Cost/Low Risk entry to China Manufacturing id tifi d identified Lease space 1 GW Capacity 10

12 Q4 Financial Performance and 2013 Guidance Joseph C. Radziewicz, Vice President and Chief Financial Officer 11

13 Sales Year over Year Sequential QTR -56% -30% $36.5 $23.1 $15.6 $4.6 $0.2 $16.1 $5.9 $1.3 $0.2 $16.1 Q Volume ASP FX Q Q Volume ASP FX Q All amounts in millions except percentages. Volume Decreased 43% Year over Year and 25% Sequentially ASP Decreased 23% Year over Year and 7% Sequentially 12

14 Gross Profit and Margin 25% 2.5% $0.6 (37.5)% $(1.5) $(1.0) $(6.0) $(2.8) $(6.0) $(1.3) Q Volume/Mix/Other Restructuring Accelerated Depreciation ASP Q All amounts in millions except percentages. Change in ASP/SM= 6.8% Change in COS/SM= 31.4%, 8.9% excluding restructuring 13

15 SG&A Expense and % of Sales Year over Year Sequential QTR 12.0% $ % 20.7% $ % $27.8 $21.3 $4.8 $4.3 YTD 2011 Change YTD 2012 Q Change Q All amounts in millions except percentages. Positive Impact Negative Impact Positive Impact Negative Impact Stock based compensation VATaudit Stock based compensation Professional fees Cost reduction actions Cost reduction actions VAT audit Professional fees 14

16 Non operating Items and EPS Non operating Items and EPS Q Q Q Goodwill Impairment $0.0MM $0.0MM $63.9MM Intangible Asset Impairment $135.5MM 5MM $0.0MM 0MM $0.0MM0MM Property, Plant & Equipment Impairment $37.4MM $0.0MM $0.0MM Interest and Deferred Financing Cost, net $0.0MM $(1.0)MM $(0.2)MM FX (Loss) Gain $(0.1)MM $(0.1)MM $(0.1)MM Effective Tax Rate (Benefit) from Continuing Operations (33.1%) (43.9%) (0.1)% Net (Loss) Earnings from Continuing Operations $(123.4)MM $(3.6)MM $(68.5)MM Diluted EPS from Continuing Operations $(2.97) $(0.09) $(1.67) Non GAAP Net (Loss) Earnings from Continuing Operations (1) $(3.7)MM $(1.1)MM $(1.9)MM Non GAAP Diluted EPS from Continuing Operations (1) $(0.09) $(0.03) $(0.05) (1) Please see appendix for reconciliation of non GAAP measures. 15

17 Balance Sheet & Liquidity Highlights Cash +16% $70.6 $82.0 Cash Flow Q4 operating cash flow of $5.3MM Q4 free cash flow of $5.1MM $4.0MM tax refund benefit $1.3MM severance & advisory fees Q Q Accounts Receivable 27% $7.3 $5.3 Raw Materials Inventory $ % $7.2 Finished Goods Inventory 18% $1.7 $1.4 Q Q All amounts in millions except percentages. Q Q Q Q Balance Sheet remains a competitive advantage 16

18 2013 Guidance Q Low High st Quarter Assumptions: Sales $9MM $10MM Average Euro of $1.31 Effective Tax Rate Benefit of ~20% Non GAAP EPS $(0.10) $(0.08) Shares Outstanding of 41.7MM Initial small scale Next Generation EVA sales Ending cash balance $77.0MM to $79.0MM ~$2.3MM severance & advisory fees Full Year 2013 Low High 2013 Full Year Assumptions: Sales $45MM $55MM Non GAAP EPS $(0.25) $(0.15) Average Euro of $1.26 Effective Tax Rate Benefit of ~20% Shares outstanding of 41.9MM Ending cash balance ~$75.0MM to $78.0MM Free cash flow of $(7.0)MM to $(4.0)MM $3.8MM capital expenditures ~$2.0MM to $3.0MM of restructuring & advisory fees $5.0MM income tax refunds 17

19 Non GAAP Reconciliation STR Holdings, Inc. RECONCILIATION OF NON GAAP MEASURES All amounts in thousands except shares and per share amounts Three Months Ended December 31, Twelve Months Ended December 31, (Unaudited) (Unaudited) (Unaudited) (Unaudited) Non GAAP (Loss) Earnings Per Share Net loss from continuing operations $ (123,444) $ (68,477) $ (211,575) $ (39,428) Adjustments ts to net loss from continuing operations: o Amortization of intangibles 2,109 2,108 8,432 8,432 Amortization of deferred financing costs ,079 4,552 Stock based compensation expense (188) 1,163 3,494 4,436 Restructuring costs 1, , Accelerated depreciation 2, , Asset impairment 37,431 37,431 1,861 Goodwill impairment 63,948 82,524 63,948 Intangible asset impairment 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, ,314,608 40,886, (1) Diluted 41,526,822 41,083,830 41,314,608 41,826,751 Three Months Ended December 31, Twelve Months Ended December 31, (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 (1) Please refer to slide 19 for the reconciliation of diluted shares outstanding for non GAAP net earnings per share. Please refer to slide 20 for further discussion and limiting factors relating to non GAAP measures. 18

20 Reconciliation of Diluted Shares Outstanding for Non GAAP EPS STR Holdings, Inc. RECONCILIATION OF NON GAAP SHARES OUTSTANDING Three Months Ended December 31, Twelve Months Ended December 31, (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 twelve months ended December 31, 2012, the diluted weightedaverage common shares outstanding for purposes of our diluted GAAP loss per share does not include 161 shares of 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 yea r ended December 31, 2011, the diluted weightedaverage common shares outstanding for purposes of our diluted GAAP loss per share does not include 4,489 stock options, 167,542 shares 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 loss from continuing operations during the twelve months ended December 31, 2012, the diluted weighted average common shares outstanding for purposes of our diluted non GAAP loss per share does not include 161 shares of restricted common stock, as these potential awards do not share in any loss generated by the Company and are anti dilutive. Due to a loss from non GAAP net earnings from continuing operations during the quarter ended December 31, 2011, the weighted average common shares outstanding for the purposes of our diluted 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. 19

21 Non GAAP Financial Measures To supplement the Company s condensed consolidated financial statements, which statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (GAAP), the Company uses two non GAAP financial measures called non GAAP earnings per share from continuing i operations (EPS) and free cash flow. The Company defines non GAAP EPS from continuing operations 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, intangible asset impairment, asset impairment, restructuring, 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 SEC on March 14, 2012 for detailed discussion on these adjustments. 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. Free cash flow is defined as operating cash flow less capital expenditures (both from continuing operations). The Company uses these non GAAP financial measures for financial and operational decision making and as a means to evaluate period to period comparisons. The Company believes that non GAAP EPS provides meaningful supplemental information regarding the Company's performance by excluding certain expenses and assets 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. The Company believes free cash flow is an important measure of its overall liquidity and its ability to fund future growth and provide a return to stockholders. Free cash flow does not reflect, among other things, mandatory debt service, other borrowing activity, discretionary dividends on the Company's common stock and acquisitions. Although the Company uses non GAAP financial metrics as a measure to assess the operating performance of its business, non GAAP metrics have significant limitations as an analytical tool because they exclude certain material costs and assets. Because non GAAP metrics do not account for these expenses or assets, their utility as a measure of the Company s operating performance have material limitations. Because of these limitations, the Company does not view non GAAP metrics in isolation and also uses other measures, such as net (loss) earnings from continuing operations, net sales, gross margin and operating (loss) income to measure operating performance. 20

22 STR Strategy R&D Lab New Products