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STR Holdings, Inc. Reports First Quarter 2015 Results

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ENFIELD, Conn., May 12, 2015 (GLOBE NEWSWIRE) -- STR Holdings, Inc. (NYSE: STRI) today announced its financial results for the first quarter ended March 31, 2015.

Advisory Note

All prior year share amounts and per share amounts below have been adjusted to reflect the one-for-three reverse stock split effected January 30, 2015.

First Quarter 2015 Summary:

  • Finalized one-for-three stock split effective January 30, 2015
  • Net sales of $6.9 million
  • Diluted GAAP loss per share from continuing operations of $(0.14); Diluted non-GAAP loss per share from continuing operations of $(0.13)
  • Adjusted EBITDA of $(1.8) million
  • Finished the quarter with $13.3 million in cash, $8.3 million in tax receivables and no debt

Zhenfa Coordination Update

Capacity Expansion

In a separate transaction coincident with the recent sale of 51% of the Company's common shares to a subsidiary of Zhenfa Energy Group Co., Ltd. (the "Zhenfa Transaction"), the Company and Zhenfa entered into a Sales Service Agreement. Under this agreement, Zhenfa will allow STR to use certain of its existing production facilities, free of charge for five years followed by rent at 50% of the then-current market rate, to expand STR's encapsulant production capacity in China. Pursuant to this agreement, the Company has selected a 110,000 square foot facility in Wuxi, Jiangsu Province. The Company has chosen this building due to its suitability for conversion to an encapsulant factory and its convenient location, which is central to many major Chinese module manufacturers and is close to both Zhenfa's corporate offices and STR's existing facility in Shajiabang. The Wuxi building can accommodate up to nine gigawatts of encapsulant production capacity.

Zhenfa has advised the Company that it will finance building improvements, ancillary equipment, one gigawatt of new production equipment and the upgrade of an additional gigawatt of STR's existing production equipment, all according to STR's specifications. The Company expects the Wuxi facility to be available for production by the end of 2015.

STR and Zhenfa are currently negotiating an arm's length lease agreement wherein STR will reimburse Zhenfa over time for its investment in the Wuxi facility. Investments made to date are solely at Zhenfa's risk.

The Company is under no obligation to lease this facility, and any such transaction would be subject to review by the Company's executive management team and the approval of the Company's Special Committee of Continuing Directors.

Business Development

In May, the Company also entered into a module-for-encapsulant swap transaction with Zhenfa and Zhejiang ReneSola Jiangsu Co., Ltd. ("ReneSola") to settle outstanding accounts. As part of this three-party transaction, the Company has agreed to accept solar modules as settlement of approximately $7.4 million of outstanding receivables from ReneSola, and Zhenfa has agreed to purchase these modules from the Company for $7.4 million.

"We are very pleased to report tangible benefits flowing from cooperative efforts with our primary stockholder," stated Robert S. Yorgensen, STR's Chairman, President and Chief Executive Officer. "We believe our innovative module-for-EVA swap demonstrates a competitive advantage that can not only be used to collect aged receivables but can also drive future sales volume. The value proposition of this approach is to provide module manufacturers with high-quality, bankable encapsulants, while also increasing their module sales and enabling payment with module inventory rather than cash, thereby improving liquidity. In addition, Zhenfa's willingness to invest in production capacity to supplement STR's current Shajiabang facility and that of our tolling partner is further evidence of Zhenfa's commitment and ability to assist STR in growing our encapsulant business in China."

Financial Results

Net sales for the quarter ended March 31, 2015 were $6.9 million, a decrease of 26% sequentially and a decrease of 26% from Q1 2014. The sequential decrease was driven by approximately 19% lower volume and a 9% decline in average selling price ("ASP"). The sequential ASP decline was primarily caused by foreign exchange translation of the Euro compared to the U.S. Dollar, which is the Company's reporting currency. The average Euro exchange rate decreased by 9% in the first quarter of 2015 compared to the fourth quarter of 2014. Ex-currency impact, our ASP declined by 3% during this period. The sequential volume decline was driven by a first quarter 2015 interruption in sales to a Chinese customer that had ramped sharply in the fourth quarter of 2014. The Company expects to resume shipments to this customer in the second quarter of 2015. In addition, one of our European customers declared self-administered insolvency in the first quarter of 2015. This European customer has since resumed operations and ordering our encapsulants after a brief period of inactivity.

On a year-over-year basis, our net sales declined $2.4 million or 26%. The year-over-year decrease was driven by approximately 10% lower volume and a 19% decline in average selling price ("ASP"). The price decline was caused by foreign exchange translation of the Euro compared to the U.S. Dollar. The average Euro exchange rate decreased by 17% in the first quarter of 2015 compared to the corresponding 2014 period. Ex-currency impact, our ASP declined by 9% driven by continued pricing pressure. The volume decline was driven by a reduction of net sales to our largest customer, which modified its OEM partner footprint in the latter part of 2014, and by one of our European customers declaring insolvency in the first quarter of 2015 as discussed above.

Gross loss for the first quarter of 2015 was $(0.1) million, or (2)% of net sales, which included $0.1 of restructuring costs, compared to $(2.3) million, or (25)% of net sales, from the fourth quarter of 2014 and gross loss of $(0.7) million, or (7)% of net sales from the first quarter of 2014. When removing the impact of $1.4 million of special items in the fourth quarter of 2014 as previously disclosed, gross loss improved by $0.8 million. The sequential improvement in gross loss was driven by lower resin pricing due to the recent decline in the price of oil, improved yield and increased raw material efficiency, including improved sales mix of our paperless encapsulants. These positive impacts were partially offset by sequentially lower net sales.

Selling, general and administrative expenses for the first quarter of 2015 were $2.6 million compared to $5.0 million in the fourth quarter of 2014 and $3.0 million in the first quarter of 2014. The sequential decrease was driven by $2.9 million of special items in the fourth quarter of 2014 that did not recur in the first quarter of 2015. When removing the impact of these special items (as previously disclosed), SG&A increased $0.5 million due to $0.3 million of higher annual incentive compensation expense and $0.3 million of higher professional fees, partially offset by benefits from prior cost-reduction actions. The year-over-year decrease of $0.4 million was primarily driven by $0.5 million of lower stock-based compensation expense due to cancelling all previously granted options in the fourth quarter of 2014 and $0.2 million of cost-reduction benefits from selling our East Windsor, Connecticut facility in 2014. These positive impacts were partially offset by $0.2 million of higher annual incentive compensation expense and $0.1 million of increased professional fees.

Adjusted EBITDA for the first quarter of 2015 was $(1.8) million compared to $(5.7) million from the fourth quarter of 2014. When removing the impact of the $3.3 million of Q4 2014 special items (as previously disclosed), adjusted EBITDA improved by $0.6 million. Favorable foreign currency transactional gains drove $0.2 million of this improvement. Ex-currency, our sequential improvement was due to our improvement in gross loss as discussed above, which more than offset higher SG&A (ex-special items) and lower net sales. This compares to Adjusted EBITDA from continuing operations of $(2.9) million for the first quarter of 2014. The improvement in 2015 is driven by favorable foreign exchange impact, improved gross loss and lower SG&A that more than offset lower net sales.

Net loss from continuing operations for the first quarter of 2015 was $(2.6) million, or $(0.14) per diluted share. This compares to a net loss from continuing operations of $(13.2) million, or $(1.36) per diluted share, for the fourth quarter of 2014 and net loss from continuing operations of $(4.6) million, or $(0.35) per diluted share, for the first quarter of 2014. The sequentially lower net loss of $10.6 million was due to the special items described above not recurring in 2015, improved adjusted EBITDA and $6.3 million of lower income tax expense. The Q4 2014 higher income tax expense was driven by recording non-cash valuation allowances on the Company's deferred tax assets as of December 31, 2014. On a year-over-year basis, net loss from continuing operations decreased by $2.0 million compared to the corresponding 2014 period driven by reduced gross loss and SG&A and favorable impact from foreign currency.

Non–GAAP net loss from continuing operations for the first quarter of 2015, which excludes certain tax-effected adjustments (as disclosed following the non–GAAP reconciliation table at the end of this press release), was $(2.4) million, or $(0.13) per diluted share. This compares to non–GAAP net loss from continuing operations of $(12.8) million, or $(1.32) per diluted share, for the fourth quarter of 2014 and non–GAAP net loss from continuing operations of $(3.2) million, or $(0.24) per diluted share, for the first quarter of 2014.

Operations Update

The Company has substantially completed the renovation of its Enfield, Connecticut facility including its research and development laboratory. In addition, the Company's newly opened Suzhou facility has achieved ISO 9001 certification.

The Company continues to retrofit its existing production equipment to produce low-shrink paperless encapsulants and has attained a product mix of approximately 65% paperless in the first quarter of 2015. The Company expects to continue to increase its product mix to the paperless configuration during 2015.

Balance Sheet and Liquidity

The Company finished the quarter with $13.3 million of cash and no debt. As of March 31, 2015, the Company also had $8.3 million of income tax receivables.

The Company generated negative operating cash flow of $1.7 million during the first quarter of 2015. With Zhenfa's assistance, the Company is currently exploring working capital financing to support expected sales volume growth.

"During the first quarter we were able to improve our adjusted EBITDA burn," stated Joseph C. Radziewicz, STR's Vice President and Chief Financial Officer. "Ex-restructuring, we were also close to achieving break-even gross profit. We are implementing additional cost-reduction actions in the second quarter that we believe will further improve our financial results going forward."  

First Quarter Conference Call and Presentation

The Company will discuss its financial results in a conference call today at 9:00 am 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.strsolar.com. Investors in the U.S. interested in participating in the live call should dial (877) 312-8789 and enter passcode: 24375197. Those calling from outside the U.S. should dial (970) 315-0282 and use the same passcode. A telephone replay will be available at 12:00 p.m. ET through Wednesday, May 20, 2015 by dialing (855) 859-2056 from the U.S., or (404) 537-3406 from international locations, and entering passcode: 24375197. The webcast and presentation will be archived on the Company's website for one year.

About STR Holdings, Inc.

STR Holdings, Inc. is a 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 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 it has made in light of the Company's 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. Forward-looking statements include, but are not limited to, the statements regarding the following: (1) incurring substantial losses for the foreseeable future and the Company's inability to achieve or sustain profitability in the future; (2) the potential impact of pursuing strategic alternatives, including dissolution and liquidation of our Company; (3) our reliance on a single product line; (4) our securing sales to new customers, growing sales to existing key customers and increasing our market share, particularly in China; (5) customer concentration in our business and our relationships with and dependence on key customers; (6) the outsourcing arrangements and reliance on third parties for the manufacture of a portion of our encapsulants; (7) 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; (8) competition; (9) excess capacity in the solar supply chain; (10) demand for solar energy in general and solar modules in particular; (11) our operations and assets in China being subject to significant political and economic uncertainties; (12) limited legal recourse under the laws of China if disputes arise; (13) our ability to adequately protect our intellectual property, particularly during the outsource manufacturing of our products in China; (14) our lack of credit facility and our inability to obtain credit; (15) a significant reduction or elimination of government subsidies and economic incentives or a change in government policies that promote the use of solar energy, particularly in China and the United States; (16) volatility in commodity costs; (17) our customers' financial profile causing additional credit risk on our accounts receivable; (18) our dependence on a limited number of third‑party suppliers for raw materials for our encapsulants and other significant materials used in our process; (19) potential product performance matters and product liability; (20) our substantial international operations and shift of business focus to emerging markets; (21) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues; (22) losses of financial incentives from government bodies in certain foreign jurisdictions; (23) compliance with the Continued Listing Criteria of the NYSE; (24) the ability to realize synergies from the transaction with Zhenfa Energy Group Co., Ltd., and (25) 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 Form 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 press 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 March 31,
  2015 2014
   (Unaudited)   (Unaudited) 
     
Net sales  $ 6,863  $ 9,336
Cost of sales  7,009  10,017
     
Gross loss  (146)  (681)
     
Selling, general and administrative expenses  2,582  2,975
Research and development expense  352  256
(Recovery) provision for bad debt expense  (43)  24
Operating loss  (3,037)  (3,936)
     
Interest income, net  4  4
Loss on disposal of fixed assets  --  (433)
Foreign currency transaction gain (loss)   480  (138)
Loss from continuing operations before income tax expense   (2,553)  (4,503)
Income tax expense from continuing operations  53  139
Net loss from continuing operations  (2,606)  (4,642)
     
Discontinued operations:    
Earnings from discontinued operations before income tax expense  --  --
Income tax benefit from discontinued operations  --  --
Net earnings from discontinued operations  --  --
     
Net loss  $ (2,606)  $ (4,642)
     
GAAP loss per share:    
Basic from continuing operations  $ (0.14)  $ (0.35)
Basic from discontinued operations  --  --
Total basic GAAP net loss per share  $ (0.14)  $ (0.35)
     
Diluted from continuing operations  $ (0.14)  $ (0.35)
Diluted from discontinued operations  --  --
Total diluted GAAP net loss per share  $ (0.14)  $ (0.35)
     
(1) Non-GAAP net loss per share:    
Basic from continuing operations  $ (0.13)  $ (0.24)
Basic from discontinued operations  --  --
Total basic non-GAAP net loss per share  $ (0.13)  $ (0.24)
     
Diluted from continuing operations  $ (0.13)  $ (0.24)
Diluted from discontinued operations  --  --
Total diluted non-GAAP net loss per share  $ (0.13)  $ (0.24)
     
Weighted-average common shares outstanding:    
Basic shares outstanding GAAP  18,070,384  13,412,904
(2) Diluted shares outstanding GAAP  18,070,384  13,412,904
Stock options  --  --
Restricted common stock  --  --
(2) Diluted shares outstanding non-GAAP  18,070,384  13,412,904
     
(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 per share included in this press release.
 
 
STR Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
All amounts in thousands
     
  March 31, 2015 December 31, 2014
   (Unaudited)   (Audited) 
ASSETS    
CURRENT ASSETS    
Cash and cash equivalents  $ 13,268  $ 16,552
Accounts receivable, net  13,016  12,057
Income tax receivable  8,252  8,252
Inventories, net  7,690  8,248
Other current assets  5,117  4,144
Total current assets  47,343  49,253
     
Property, plant and equipment, net  20,201  20,195
Other noncurrent assets  342  354
Total assets  $ 67,886  $ 69,802
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
CURRENT LIABILITIES    
Accounts payable  $ 3,607  $ 2,653
Accrued liabilities  4,045  2,780
Other current liabilities  --  204
Income taxes payable  1,877  1,865
Total current liabilities  9,529  7,502
     
 Long-term liabilities  4,627  4,577
Total liabilities  14,156  12,079
     
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