22:00 | 11.05.2010
STR Holdings Reports Strong First Quarter 2010 Earnings Growth and Increases Full-Year Guidance
STR Holdings, Inc. (NYSE:STRI) today announced financial results for the
first quarter ended March 31, 2010. The Company also provided guidance
for the second quarter and increased its 2010 financial guidance.
Q1 Financial Highlights:
STR Solar segment’s net sales rose 60.3% to $54.8 million compared
with $34.2 million in the first quarter of 2009 and rose 8.9% on a
quarterly sequential basis.
Diluted EPS of $0.19 vs. $0.08 a year ago; non-GAAP diluted EPS of
$0.31 vs. $0.15 a year ago.
Operating cash flow of $13.2 million exceeded net income.
Consolidated Financial Results
Consolidated net sales rose 37.3% to $79.8 million, compared with $58.1
million in the first quarter of 2009.
Consolidated gross profit rose 49.5% to $30.1 million, compared with
$20.1 million in the first quarter of 2009.
Selling, general and administrative expense for the first quarter of
2010 was $16.0 million compared with $10.9 million in the same quarter
of 2009. The increase was driven by $3.4 million of non-cash stock-based
compensation expense primarily related to the issuance of stock options
to replace certain pre-initial public offering incentive units as a
result of the change in capital structure from a limited liability
company to a corporation. The remaining increase was attributable to
strengthening sales, information technology and various corporate
functions and other costs related to being a public company.
Net income for the first quarter of 2010 rose 149.3% to $7.8 million, or
$0.19 on a diluted EPS basis. This compared with net income of $3.1
million, or $0.08 on a diluted EPS basis, for the first quarter of 2009.
On a non-GAAP basis, which excludes the impact of intangible asset
amortization expense, non-cash stock-based compensation, amortization of
deferred financing costs, secondary offering expense and associated tax
effect, non-GAAP net income for the first quarter of 2010 rose 130.2% to
$12.7 million, or $0.31 on a diluted EPS basis. This compared with
non-GAAP net income of $5.5 million, or $0.15 on a diluted EPS basis,
for the first quarter of 2009.
Solar Segment
For the quarter ended March 31, 2010, STR Solar segment’s net sales rose
60.3% to $54.8 million compared with $34.2 million a year ago and rose
8.9% on a quarterly sequential basis from $50.3 million, reflecting
continued expansion of the global solar market and further sales growth
with Asian module manufacturers.
Solar segment gross profit for the first quarter of 2010 increased 74.4%
to $23.4 million compared with $13.4 million a year ago and adjusted
EBITDA rose 64.4% to $24.9 million compared with $15.1 million a year
ago primarily due to an 87% increase in sales volume. Solar gross profit
as a percentage of net sales for the first quarter of 2010 improved 340
basis points from the corresponding 2009 quarter. This increase was
driven by improved labor efficiencies and favorable fixed cost
absorption due to the previously mentioned increase in sales volume that
more than offset lower ASPs and increased raw material costs.
Chairman, President and Chief Executive Officer Dennis L. Jilot stated,
“We are pleased that Solar’s global sales volume increased 22% on a
quarterly sequential basis. Additionally, during the first quarter of
2010, our Solar business continued to execute our ‘One-Plus-China’
strategy as net sales into Asia increased approximately 72% quarter over
quarter and 31% on a sequential quarterly basis. In light of anticipated
growth in our Solar business, we have initiated an expansion that will
double the size of the production and warehouse space in Malaysia
providing floor space for total capacity of up to 4.0 GW. We expect this
project to be completed by the end of the first quarter of 2011.”
Quality Assurance Segment
STR’s Quality Assurance (QA) business net sales for the first quarter of
2010 rose 4.3% to $25.0 million from $23.9 million a year ago as a
result of increased testing for toy products and demand for social
accountability audit services.
QA adjusted EBITDA was $1.6 million, compared with $2.8 million a year
ago. This decline was the result of increased labor expense primarily
related to information technology systems that are near the
implementation stage. These expenses were capitalized in the prior year
when the projects were in the development phase.
As previously announced, the Company’s current forecast reflects that
certain clients will reduce the scope of services procured from STR QA
in 2010. In response, the QA business has implemented various cost
reduction activities and the QA global leadership team is keenly focused
on increasing sales to existing clients as well as aggressively
targeting new business.
Liquidity
During the first quarter of 2010, the Company generated $13.2 million of
operating cash flow, up 9.2% from $12.1 million a year ago. Free cash
flow, which is defined as operating cash flow less capital expenditures,
increased 59.0%, or $3.7 million from the first quarter of 2009 mainly
as a result of increased earnings and lower spending on machinery and
equipment.
STR’s Executive Vice President and Chief Financial Officer Barry A.
Morris stated, “STR Solar’s capacity utilization during the first
quarter of 2010 was approximately 80%. Therefore, we have advanced our
2011 capacity plan, including expansion of our Malaysia facility. We
estimate our 2010 capital expenditure requirements to approximate $38
million. Our strong balance sheet and cash flow generation capability
will allow these expenditures to be funded internally and provide
liquidity for additional opportunities that may arise.”
Business Outlook
The Company today provided guidance for the second quarter and increased
its previously announced full-year 2010 financial guidance as follows:
(Amounts in millions, except per share amounts)
Quarter Ending June 30, 2010
Low
High
Solar net sales
$
58.0
$
62.0
QA net sales
28.0
30.0
Total net sales
86.0
92.0
Diluted non-GAAP EPS
$
0.33
$
0.36
Year Ending December 31, 2010
Low
High
Solar net sales
$
200.0
$
215.0
QA net sales
115.0
125.0
Total net sales
315.0
340.0
Diluted non-GAAP EPS
$
1.12
$
1.20
Mr. Jilot added, “Although we expect the German feed-in tariff reduction
to moderate our growth rate, our exceptional first quarter performance
and visibility into the second quarter gives us a high degree of
confidence that our full-year results will be stronger than previously
anticipated.”
Conference Call
STR will discuss its financial results and guidance in a conference call
today at 4:30 p.m. EDT. Investors interested in participating in the
live call from the U.S. should dial 866-770-7125 and enter passcode:
14276552. Those calling from outside the U.S. should dial 617-213-8066
and use the same passcode. A telephone replay will be available
approximately two hours after the call concludes through Monday, May 31,
2010 by dialing 888-286-8010 from the U.S., or 617-801-6888 from
international locations, and entering passcode: 11055818. There also
will be a simultaneous live webcast available on the Investor Relations
section of the Company’s website at www.strholdings.com.
The webcast will be archived on the website for 365 days.
About STR Holdings, Inc.
STR Holdings, Inc. is a leading global provider of high quality,
superior performance solar encapsulants to the photovoltaic module
industry. It is also one of the world’s leading providers of consumer
product quality assurance testing, audit, inspection and responsible
sourcing services, which ensures that suppliers and retailers have the
highest level of confidence in the quality and safety of their products
and in the social standards of the supply chain producing them. 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 contains 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 release, the Company faces risks and
uncertainties that include, but are not limited to, the following: (i)
demand for solar energy in general and solar modules in particular; (ii)
the timing and effects of the implementation of recently announced
government incentives and policies for renewable energy, primarily in
China and the United States; (iii) the effects of the recently announced
proposed cut to solar incentives in Germany and Italy; (iv) customer
concentration in the Company’s Solar business and our relationships with
key customers; (v) the continual operation of our Malaysia plant and the
planned expansion of our Malaysia plant; (vi) demand for our Quality
Assurance services; (vii) the need to utilize its existing $20 million
revolving credit facility, and the ability to further access the credit
markets on acceptable terms; (viii) maintaining sufficient liquidity in
order to fund future profitable growth and long term vitality; (ix) the
continuing effects of the ongoing recession on sales; (x) pricing
pressures and other competitive factors; (xi) the impact of the current
negative credit markets may have on the Company or its customers or
suppliers; (xii) loss of professional accreditations and memberships;
(xiii) the extent to which the Company may be required to write-off
accounts receivable or inventory; (xiv) the Company’s reliance on
vendors and potential supply chain disruptions, including those
resulting from bankruptcy filings by customers or vendors; (xv) any
potential inflation of commodity costs, including paper and resin used
in the Company’s encapsulants, and the Company’s ability to successfully
manage any increases in these commodity costs; (xvi) potential product
performance matters, product liability or professional liability claims
and the Company’s ability to manage them; (xvii) the impact of changes
in foreign currency exchange rates on financial results, and the
geographic distribution of revenues and earnings; (xviii) the impact of
changes in interest rates in relation to the Company’s variable rate
debt; (xix) the impact of events that cause or may cause disruption in
the Company inspection, testing, manufacturing, distribution and sales
networks such as war, terrorist activities, and political unrest; (xx)
the extent and duration of the current recession in the global economy,
including the timing of expected economic recovery in the United States
and abroad; (xxi) outcomes of litigation and regulatory actions; (xxii)
our ability to protect our intellectual property and (xxiii) the other
risks and uncertainties described under “Risk Factors” and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations” in the Company’s prospectus filed with the SEC on November
9, 2009 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 www.sec.gov
or 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
Three Months Ended
March 31, 2010
March 31, 2009
(Unaudited)
(Unaudited)
Net sales – Solar
$
54,811
$
34,187
Net sales – Quality Assurance
24,962
23,928
Total net sales
79,773
58,115
Cost of sales – Solar
31,454
20,794
Cost of sales – Quality Assurance
18,228
17,199
Total cost of sales
49,682
37,993
Gross profit
30,091
20,122
Selling, general and administrative expenses
15,969
10,888
Bad debt expense
109
400
Earnings on equity-method investments
(19
)
(36
)
Operating income
14,032
8,870
Other expense
3,030
3,836
Earnings before income tax expense
11,002
5,034
Income tax expense
3,242
1,921
Net income
$
7,760
$
3,113
Basic and diluted net income per share
Basic
$
0.19
$
0.09
Diluted
$
0.19
$
0.08
* Non-GAAP earnings per share:
Basic
$
0.32
$
0.15
Diluted
$
0.31
$
0.15
Weighted average shares outstanding:
Basic
40,190,769
36,434,486
add: dilutive effect of stock options
705,084
-
add: dilutive effect of restricted common stock
802,996
1,030,280
Diluted
41,698,849
37,464,766
* Please refer to the reconciliation of Non-GAAP measures included
in this release.
STR Holdings, Inc.CONDENSED CONSOLIDATED BALANCE SHEETSAll amounts in thousands except share amounts
March 31, 2010
December 31, 2009
(Unaudited)
(Unaudited)
ASSETS
CURRENT ASSETS
Cash, cash equivalents and short-term investments
$
77,262
$
70,150
Accounts receivable, trade, net
37,582
33,744
Inventories
12,828
12,267
Other current assets
10,934
8,962
Total current assets
138,606
125,123
Property, plant and equipment, net
67,736
68,895
Intangible assets, net
436,646
439,522
Other noncurrent assets
11,947
12,320
Total assets
$
654,935
$
645,860
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt
$
1,938
$
1,981
Interest rate swap liability
2,802
4,018
Other current liabilities
36,108
33,986
Total current liabilities
40,848
39,985
Long-term debt, less current portion
238,062
238,525
Other long-term liabilities
95,363
96,080
Total liabilities
374,273
374,590
STOCKHOLDERS’ EQUITY
Stockholders’ equity
280,662
271,270
Total liabilities and stockholders’ equity
$
654,935
$
645,860
STR Holdings, Inc.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSAll amounts in thousands
Three Months Ended
Three Months Ended
March 31, 2010
March 31, 2009
(Unaudited)
(Unaudited)
OPERATING ACTIVITIES
Net income
$
7,760
$
3,113
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation
2,882
2,750
Amortization of intangibles
2,876
2,876
Amortization of deferred financing costs
332
288
Stock-based compensation expense
3,791
404
Unrealized gain on interest rate swap
(1,216
)
(569
)
Earnings in equity investments
(19
)
(36
)
(Gain) loss on disposal of property, plant and equipment
(1
)
1
Provision for bad debt expense
109
400
Provision for deferred taxes
1,047
(163
)
Changes in operating assets and liabilities
(4,319
)
3,058
Net cash provided by operating activities
13,242
12,122
INVESTING ACTIVITIES
(3,137
)
(5,773
)
FINANCING ACTIVITIES
(1,644
)
(753
)
Effect of exchange rate changes on cash
(1,350
)
(504
)
Net increase in cash and cash equivalents
7,111
5,092
Cash and cash equivalents, Beginning of period
69,149
27,868
Cash and cash equivalents, End of period
$
76,260
$
32,960
* Free cash flow
$
10,093
$
6,349
* Please refer to the reconciliation of Non-GAAP measures included
in this release.
STR Holdings, Inc.RECONCILIATION OF NON-GAAP MEASURESAll amounts in thousands except shares and per share amounts
Three Months Ended
Three Months Ended
March 31, 2010
March 31, 2009
(Unaudited)
(Unaudited)
Non-GAAP Earnings Per Share
Net income
$
7,760
$
3,113
Add:
Amortization of intangibles
2,876
2,876
Amortization of deferred financing costs
332
288
Stock-based compensation expense
3,791
404
Secondary offering expense
193
-
Tax effect of non-GAAP adjustments
(2,224
)
(1,153
)
Non-GAAP net income
$
12,728
$
5,528
Non-GAAP earnings per share:
Basic
$
0.32
$
0.15
Diluted
$
0.31
$
0.15
Weighted average shares outstanding:
Basic
40,190,769
36,434,486
add: dilutive effect of stock options
705,084
-
add: dilutive effect of restricted common stock
802,996
1,030,280
Diluted
41,698,849
37,464,766
Three Months EndedMarch 31, 2010
Three Months EndedMarch 31, 2009
(Unaudited)
(Unaudited)
Free Cash Flow
Cash flow from operations
$
13,242
$
12,122
Less:
Capital expenditures
(3,149
)
(5,773
)
Free cash flow
$
10,093
$
6,349
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 (EPS) and free cash flow. The Company defines
non-GAAP EPS as net income not including the impact of amortization of
deferred financing costs, stock-based compensation, intangible asset
amortization expense, secondary offering expense and associated tax
effect divided by the weighted average shares outstanding. It should be
noted that diluted weighted average shares are determined on a GAAP
basis and the resulting share count is used for computing both GAAP and
non-GAAP diluted EPS. Free cash flow is defined as cash flow from
operations less capital expenditures. The Company uses these non-GAAP
financial measures for financial and operational decision making and as
a means to evaluate period-to-period comparisons.
Management believes that non-GAAP EPS provides meaningful supplemental
information regarding the Company’s 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.
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 shareowners. 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.
|
