North Coast Solar Stocks

November 16, 2009

STR Holdings Reports Third Quarter 2009 Financial Results

Filed under: STRI — Tags: , , , , , , — Jason @ 10:08 pm

10:08 pm EST, Monday November 16, 2009

ENFIELD, Conn.–(BUSINESS WIRE)–STR Holdings, Inc. (STRI) today announced its consolidated financial results for the quarter and nine months ended September 30, 2009.

Third Quarter 2009 consolidated financial and operating highlights include:

* Solar Net Sales rose 19% to $35.4 million, on a quarterly sequential basis
* Quality Assurance Net Sales increased 13% to $32.0 million from the 2008 third quarter
* Operating Cash Flow of $15.7 million significantly exceeded Net Income

During the third quarter of 2009, the Company’s Solar segment net sales declined by $12.8 million, or 27%, compared to the third quarter of 2008. Solar segment adjusted EBITDA for the third quarter of 2009 was $16.5 million, compared with $21.9 million a year ago.

During 2009, the Company’s Solar segment has been negatively impacted by an oversupply of inventory in the Solar module supply chain. However, on a sequential basis, third quarter 2009 Solar sales rose 19% to $35.4 million as a result of increased sales in the United States and Europe as overall solar industry conditions have shown improvement during the quarter in key end markets including California, Germany and Italy.

STR’s Quality Assurance segment net sales for the third quarter of 2009 rose $3.6 million, or 13%, from the same quarter last year due to increased testing volume in the United States and Asia. Quality Assurance adjusted EBITDA rose to $7.1 million, up from $5.6 million a year ago.

“This quarter’s financial results reflected double digit improvement in our sequential top-line performance as well as significant growth in our cash flow generation,” stated Chairman, President and Chief Executive Officer Dennis L. Jilot. “And, while it came as no surprise that we saw a year over year decline in our Solar segment sales, we are now seeing signs that economic conditions are improving. At the same time, we recently began shipping from our new Malaysian plant, making us the only encapsulant provider with manufacturing and distribution capabilities in North America, Europe and Asia. As such, STR is well positioned to capitalize on the solar industry’s global expansion, including the emerging China market.”

Selling, general and administrative expense for the third quarter of 2009 declined by $2.3 million, or 19% compared to the corresponding third quarter of 2008. This reduction was primarily due to lower professional fees and lower annual incentive compensation expense.

On November 12, 2009, the Company closed its initial public offering (IPO) of 12.3 million shares of common stock at $10 per share. Prior to the closing of the IPO, the Company converted from a limited liability company to a corporation and all of the Company’s outstanding units were converted into 36.7 million shares of common stock and 1.3 million shares of restricted common stock. The impact of this issuance has been applied on a retrospective basis to determine earnings per share (EPS) for each of the periods presented.

Net income for the third quarter of 2009 was $7.9 million, or $0.21 on a diluted EPS basis, compared with $8.9 million, or $0.24 on a diluted EPS basis for the corresponding 2008 period. Diluted non-GAAP EPS for the third quarter of 2009 totaled $0.28. This compares with $0.30 on a diluted non-GAAP EPS basis, for the third quarter of 2008. (See discussion of Non-GAAP Financial Measures and the reconciliation table below for details).

During the third quarter of 2009, the Company generated $15.7 million of operating cash flow, up 19% from $13.2 million of the same quarter last year. Free Cash Flow, which is defined as operating cash flow less capital expenditures, increased 137%, or $7.4 million, from the third quarter of 2008. This increase in free cash flow was primarily due to lower spending on capacity expansion and improved working capital performance. (See discussion of Non-GAAP Financial Measures and the reconciliation table below for details).

STR’s Executive Vice President and Chief Financial Officer Barry A. Morris stated, “Even in recessionary times, STR continues to deliver strong cash flow to fund future growth and provide liquidity. We will continue to focus on maintaining effective cost controls and managing working capital in order to increase shareholder value as we have demonstrated this quarter.”

STR Holdings, Inc.
CONDENSED CONSOLIDATED INCOME STATEMENT
All amounts in thousands except shares and per share amounts
Quarter Ended September 30, 2009 Quarter Ended September 30, 2008 Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net sales – Solar $ 35,362 $ 48,134 $ 99,192 $ 134,007
Net sales – Quality Assurance 31,956 28,333 85,804 79,192
Total net sales 67,318 76,467 184,996 213,199
Cost of sales – Solar 21,837 26,324 62,904 69,407
Cost of sales – Quality Assurance 20,155 18,273 56,259 53,311
Total cost of sales 41,992 44,597 119,163 122,718
Gross profit 25,326 31,870 65,833 90,481
Selling, general and administrative expenses 9,498 11,771 29,760 33,414
Bad debt expense 20 129 1,372 726
Operating Income 15,808 19,970 34,701 56,341
Other income (expense) (3,966 ) (5,846 ) (12,020 ) (16,457 )
Income before income tax expense 11,842 14,124 22,681 39,884
Income tax expense 3,955 5,219 8,551 15,006
Net Income $ 7,887 $ 8,905 $ 14,130 $ 24,878
Earnings per share:
Basic $ 0.22 $ 0.25 $ 0.39 $ 0.69
Diluted $ 0.21 $ 0.24 $ 0.38 $ 0.67
* Non-GAAP earnings per share:
Basic $ 0.29 $ 0.31 $ 0.58 $ 0.88
Diluted $ 0.28 $ 0.30 $ 0.57 $ 0.85
Weighted average shares outstanding:
Basic 36,665,586 36,175,080 36,490,833 36,051,405
Diluted 37,298,120 37,398,417 37,201,579 37,260,225
* Please refer to the reconciliation of Non-GAAP measures included in this release.
STR Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEET
All amounts in thousands except unit amounts
September 30, 2009 December 31, 2008
ASSETS (Unaudited)
CURRENT ASSETS
Cash, cash equivalents and short term investments $ 50,340 $ 27,868
Accounts receivable, trade, net 32,453 36,454
Inventories 10,295 18,771
Other current assets 7,173 7,145
Total current assets 100,261 90,238
Property, plant and equipment, net 67,403 62,516
Intangibles 442,397 450,965
Other noncurrent assets 17,554 17,203
Total assets $ 627,615 $ 620,922
LIABILITIES, CONTINGENTLY REDEEMABLE UNITS AND UNITHOLDERS’ EQUITY
CURRENT LIABILITIES
Current portion of long-term debt $ 2,023 $ 2,015
Interest rate swap 5,110
Other current liabilities 37,850 45,055
Total current liabilities 44,983 47,070
Long-term debt, less current portion 253,988 255,506
Interest rate swap liability 6,013
Other long-term liabilities 96,886 97,436
Total liabilities 395,857 406,025
CONTINGENTLY REDEEMABLE UNITS 3,776 2,930
UNITHOLDERS’ EQUITY
Unitholders’ equity 227,982 211,967
Total liabilities, contingently redeemable units and unitholders’ equity $ 627,615 $ 620,922
STR Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
As of September 30, 2009
All amounts in thousands
Quarter Ended September 30, 2009 Quarter Ended September 30, 2008 Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
OPERATING ACTIVITIES
Net income $ 7,887 $ 8,905 $ 14,130 $ 24,878
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 3,062 2,203 8,822 6,304
Amortization of intangibles 2,876 2,875 8,628 8,627
Amortization of deferred financing costs 288 285 863 878
Stock-based compensation expense 859 413 1,852 1,346
Unrealized (gain) loss on interest rate swap (316 ) (172 ) (903 ) 115
Earnings in equity investments (68 ) (74 ) (227 ) (74 )
Loss on disposal of property, plant and equipment 10
Provision for bad debt expense 20 129 1,372 726
Provision for deferred taxes (520 ) 373 (573 ) (521 )
Changes in operating assets and liabilities 1,616 (1,728 ) 2,636 (3,335 )
Net cash provided by operating activities 15,704 13,209 36,610 38,944
INVESTING ACTIVITIES (3,832 ) (7,774 ) (14,443 ) (22,733 )
FINANCING ACTIVITIES (1,167 ) (2,753 ) (2,403 ) (3,754 )
Effect of exchange rate changes on cash 1,170 (1,934 ) 1,708 (774 )
Net increase in cash and cash equivalents 11,875 748 21,472 11,683
Cash and cash equivalents, Beginning of period 37,465 32,115 27,868 21,180
Cash and cash equivalents, End of period $ 49,340 $ 32,863 $ 49,340 $ 32,863
* Free cash flow $ 12,872 $ 5,435 $ 23,167 $ 16,211
* Please refer to the reconciliation of Non-GAAP measures included in this release.
STR Holdings, Inc.
RECONCILIATION OF NON-GAAP MEASURES
As of September 30, 2009
All amounts in thousands except shares and per share amounts
Three Months Ended September 30, 2009 Three Months Ended September 30, 2008 Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
Non-GAAP Earnings Per Share (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Net Income $ 7,887 $ 8,905 $ 14,130 $ 24,878
Add:
Amortization of deferred financing costs 288 285 863 878
Stock-based compensation expense 859 413 1,852 1,346
Intangible asset amortization expense 2,876 2,875 8,628 8,627
Tax effect of Non-GAAP adjustments (1,344 ) (1,320 ) (4,435 ) (4,074 )
Non-GAAP net income $ 10,566 $ 11,158 $ 21,038 $ 31,655
Non-GAAP earnings per share:
Basic $ 0.29 $ 0.31 $ 0.58 $ 0.88
Diluted $ 0.28 $ 0.30 $ 0.57 $ 0.85
Weighted average shares outstanding:
Basic 36,665,586 36,175,080 36,490,833 36,051,405
Diluted 37,298,120 37,398,417 37,201,579 37,260,225
Three Month Ended September 30, 2009 Three Month Ended September 30, 2008 Nine Months Ended September 30, 2009 Nine Months Ended September 30, 2008
Free Cash Flow (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Cash flow from operations $ 15,704 $ 13,209 $ 36,610 $ 38,944
Less:
Capital expenditures (2,832 )

 

(7,774 )

 

(13,443 )

 

(22,733 )

 

Free cash flow $ 12,872 $ 5,435 $ 23,167 $ 16,211

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 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 and intangible asset amortization expense divided by the weighted average shares outstanding. 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. Our presentations of these measures, however, may not be comparable to similarly titled measures used by other companies.

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.

Contact:

STR Holdings, Inc.
Barry Morris, Executive Vice President and Chief Financial Officer
(860) 749-8371
barry.morris@strus.com
or
Joseph Radziewicz, Controller and Principal Accounting Officer
(860) 749-8371
joseph.radziewicz@strus.com
or
ICR Inc.
Ina McGuiness, Investor Relations Consultant
(310) 954-1100
Ina.McGuinness@icrinc.com
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