Second Quarter 2012 Highlights:
- GAAP revenue of $808.4 million and GAAP EPS of ($0.27)
- Non-GAAP revenue of $933.4 million and non-GAAP EPS of $0.14
- Semiconductor Materials wafer volume grew 10% sequentially
- Solar Energy segment sold 169 MW of solar energy systems, interconnected 87 MW and ended the quarter with 104 MW under construction
- Cash and cash equivalents of $448.6 million at quarter end
MEMC Electronic Materials, Inc. (NYSE: WFR) announced financial results for the second quarter of 2012 that reflected improvement in the company's Semiconductor Materials business and improved operational execution in its Solar Energy business.
Revenue in the second quarter of 2012 increased sequentially and year-over-year on improving conditions and operational execution in the company's semiconductor business, and stronger execution in a difficult environment in its solar energy business. Revenue in the company's Semiconductor Materials business grew sequentially driven by higher volume but declined year-over-year due to price erosion and lower volume. Solar Energy revenue rose sequentially and year over year on higher solar project sales. For the second quarter of 2012, SunEdison recognized non-GAAP revenue on 169 MW of solar energy systems sales, compared to 49 MW in the 2012 first quarter and 28 MW in the 2011 second quarter. Despite these increased solar energy systems sales, SunEdison's project pipeline remained flat at 2.9 GW.
"Our improved results were driven by better performance in both our Semiconductor Materials and Solar Energy segments. We sold several large European solar projects despite highly uncertain market conditions, and we experienced stronger semiconductor wafer demand. As a result, our financial position strengthened," said MEMC's Chief Executive Officer Ahmad Chatila. "For the second half of the year, we remain committed to driving a healthier balance sheet and stronger returns for our stakeholders."
Revenue
GAAP revenue for the second quarter was $808.4 million, representing an increase of 8% from $745.6 million in the second quarter of 2011 and an increase of 56% from $519.2 million in the first quarter of 2012. The year-over-year increase was driven by higher Solar Energy segment revenue, partially offset by lower Semiconductor Materials segment revenue. Second quarter 2011 GAAP revenue included revenue of $149.4 million resulting from the resolution of a long term solar wafer supply contract (LTA) with a customer. The sequential increase was driven by significantly higher Solar Energy segment revenue and higher Semiconductor Materials segment revenue.
Non-GAAP revenue for the quarter was $933.4 million, a 20% increase compared to the 2011 second quarter and a 78% increase compared to the 2012 first quarter. Second quarter 2011 non-GAAP revenue included $149.4 million resulting from the LTA resolution. The year-over-year increase was driven by higher Solar Energy revenue, partially offset by lower Semiconductor Materials revenue, while the sequential increase was driven by strong growth in both the Semiconductor Materials and Solar Energy segments. Non-GAAP revenue for the 2012 second quarter includes $125.0 million related to real estate and sale-leaseback transactions that will be recognized in earnings under GAAP in the future, primarily beyond 2012. See the financial statement tables at the end of this press release for a reconciliation of all GAAP to non-GAAP financial measures included herein.
Gross Margin
GAAP gross margin in the 2012 second quarter was 13.2%, compared to 24.3% in the 2011 second quarter and 10.9% in the 2012 first quarter. Non-GAAP gross margin was 16.7% in the 2012 second quarter, compared to 25.2% in the 2011 second quarter and 10.0% in the 2012 first quarter. Second quarter 2011 GAAP and non-GAAP gross margin included a $75.6 million net benefit which was comprised of the $149.4 million LTA resolution, partially offset by various other charges of $73.8 million. GAAP and non-GAAP gross margin were negatively affected year-over-year by weaker solar wafer and semiconductor wafer pricing and volume. On a sequential basis, both GAAP and non-GAAP gross margin were higher due to increased operating leverage in both our semiconductor and solar energy businesses.
Net Income (Loss)
GAAP net loss for the 2012 second quarter was $61.3 million, or ($0.27) per share, compared to net income of $47.3 million, or $0.21 per share, in the 2011 second quarter and a net loss of $92.0 million, or ($0.40) per share, in the 2012 first quarter.
Non-GAAP net income for the 2012 second quarter was $32.9 million, or $0.14 per share, compared to non-GAAP net income of $66.2 million, or $0.29 per share, in the 2011 second quarter and non-GAAP net loss in the 2012 first quarter of $59.4 million, or ($0.26) per share. Second quarter 2011 GAAP and non-GAAP net income was positively impacted by $64.5 million, reflecting an after tax benefit of $132.6 million related to the LTA resolution, partially offset by $68.1 million in various other charges. Non-GAAP net income includes the company's customary adjustments related to its SunEdison project development business. See the financial statement tables at the end of this press release for a reconciliation of all GAAP to non-GAAP financial measures included herein.
Cash Flow
During the 2012 second quarter, operating cash flow was $100.3 million and free cash flow was $114.2 million. Operating and free cash flows were primarily driven by solar project sales. See the reconciliation of free cash flow in the financial statement tables at the end of this press release.
Capital expenditures were $36.3 million in the 2012 second quarter, down from $102.7 million in the 2011 second quarter and $40.0 million in the 2012 first quarter. For the remainder of 2012, capital spending is expected to remain at or below the current quarterly rate and will be largely targeted for the Semiconductor Materials segment.
Construction of solar energy systems of $58.7 million in the 2012 second quarter included solar energy systems currently classified as owned and carried as fixed assets. The majority of these projects are expected to become sale-leaseback transactions in which the assets are financed with non-recourse debt. Projects expected to result in direct sales are classified as solar energy systems held for development and sale, thus impacting operating cash flows as noted above.
MEMC ended the 2012 second quarter with cash and cash equivalents of $448.6 million, an increase of $68.0 million from the prior quarter, driven primarily by improved operational performance and completed solar energy system financings. Unrestricted cash and unused corporate revolver capacity was $719.1 million at the end of the 2012 second quarter, as compared to $636.9 million at the end of the 2012 first quarter. The company continues to implement programs to manage its liquidity and capital resources and expects to maintain adequate liquidity during 2012.
A non-recourse construction facility for North American projects has been recently amended, which amendment included decreasing the total capacity to $110 million, against which approximately $66 million was drawn at quarter end, with the balance of $44 million available for draws at June 30, 2012.
Following is additional detail on second quarter 2012 results by segment.
Semiconductor Materials
Semiconductor Materials GAAP revenue was $232.7 million, a decrease of 16% compared to the 2011 second quarter and an increase of 8% compared to the 2012 first quarter. The year-over-year decline was driven by lower small diameter wafer volume and softer pricing across all diameters. The sequential increase was primarily driven by higher wafer volumes across most diameters, offset partially by weaker 300mm pricing.
Segment operating loss was $4.3 million, compared to operating profit of $3.4 million in the 2011 second quarter and an operating loss of $12.5 million in the 2012 first quarter. The year-over-year decline was driven primarily by lower sales, plant utilization and pricing, and the sequential improvement was driven by productivity gains and cost improvements, partially offset by lower prices.
Solar Energy
Solar Energy GAAP revenue was $575.7 million, a 22% increase from the 2011 second quarter and a 90% increase from the 2012 first quarter. Solar Energy GAAP revenue in the 2011 second quarter included a $149.4 million benefit related to the LTA resolution. The year-over-year increase was driven by higher solar project sales, partially offset by lower solar wafer pricing and volume. The sequential increase was largely driven by higher solar project sales. Solar energy projects representing 144 MW were recognized under segment GAAP revenue in the 2012 second quarter, compared to 23 MW in the 2011 second quarter and 47 MW in the 2012 first quarter.
Segment GAAP operating income was $27.7 million, compared to operating income of $80.8 million in the 2011 second quarter and operating loss of $10.5 million in the 2012 first quarter. Second quarter 2011 segment operating income was favorably impacted by a $75.6 million net benefit which was comprised of the $149.4 million LTA resolution, partially offset by various other charges of $73.8 million.
Segment non-GAAP revenue for the 2012 second quarter was $700.7 million, compared to $504.3 million in the 2011 second quarter and $307.8 million in the 2012 first quarter. Solar Energy non-GAAP revenue in the 2011 second quarter included a $149.4 million benefit related to the LTA resolution. Second quarter 2012 non-GAAP revenue also included net adjustments of $125.0 million related to direct sale and sale-leaseback transactions. Solar projects representing 169 MW were recognized under segment non-GAAP revenue, of which 155 MW were direct sales and 14 MW were sale-leaseback transactions.
Solar projects interconnected during the 2012 second quarter were 87 MW in 24 projects, comprised of 56 MW of direct sales projects and 31 MW of sale-leaseback projects.
Second quarter 2012 segment non-GAAP operating income was $77.5 million, compared to non-GAAP operating income of $96.3 million in the 2011 second quarter and non-GAAP operating loss of $14.7 million in the 2012 first quarter. The year-over-year decline was driven by the LTA resolution and weaker solar wafer profits, partially offset by higher solar project profits. The sequential increase was driven by higher solar wafer and solar project margins.
Solar Energy ended the 2012 second quarter with a pipeline of 2.9 GW, flat compared to the prior quarter and up from 2.5 GW a year ago. A solar project is classified as "pipeline" where SunEdison has a signed or awarded PPA or other energy off-take agreement or has achieved each of the following three items: site control, an identified interconnection point with an estimate of the interconnection costs, and an executed energy off-take agreement or the determination that there is a reasonable likelihood that an energy off-take agreement will be signed. There can be no assurance that all pipeline projects will convert to revenue because in the ordinary course of our development business some fall-out is typical and certain projects will not be built.
As of June 30, 2012, 104 MW of the pipeline was under construction. "Under construction" refers to projects within pipeline, in various stages of completion, which are not yet operational.
Corporate/Other
Corporate/other costs were $22.7 million in the 2012 second quarter, compared to $32.5 million in the 2011 second quarter and $24.6 million in the 2012 first quarter. The year-over-year decline was largely driven by lower stock compensation expense and reduced purchased services expenses.
Outlook
In light of the current uncertainty in the semiconductor and solar markets, the company is not providing specific revenue and earnings guidance at this time. The company expects the following, assuming no significant worldwide economic issues or other exogenous shocks in the second half of 2012:
For the third quarter 2012:
Semiconductor revenue up 3% to 8% sequentially
Solar energy systems non-GAAP sales volume in the range of 40 MW to 60 MW
Solar energy systems average pricing greater than $3.50/watt
Operating expenses less than $100 million
Capital spending less than $30 million
For the full year 2012:
Semiconductor revenue down 2% to 5% year-over-year
Revenue in second half 2012 stronger than in first half 2012
Solar energy systems non-GAAP sales volume greater than 400 MW
Solar energy systems average pricing greater than $3.50/watt
Operating expenses of approximately $385 million
Capital spending less than $150 million
Use of Non-GAAP Measures
Management has determined that certain non-GAAP metrics for the Solar Energy segment presented herein are the key metrics that will help investors understand the ultimate income and near-term cash flows generated by our SunEdison business. These non-GAAP measures and metrics include deferrals required under GAAP real estate and lease accounting for some of SunEdison's direct sales and or its sale-leaseback transactions. Management has also determined that the non-GAAP measure of "free cash flow" is useful to help investors better understand the capital intensity of our business, including our project financing operations. For a complete description of our non-GAAP measures, see the non-GAAP reconciliation tables below.
