MEMC Reports First Quarter 2012 Results

ST. PETERS, Mo., May 9, 2012 /PRNewswire/ -- MEMC Electronic Materials, Inc. (NYSE: WFR) announced financial results for the first quarter of 2012 that reflected continued challenges in the solar market and the potential bottom of the current semiconductor cycle.

Overall revenue in the first quarter of 2012 declined sequentially and year-over-year on weakness in semiconductor wafer and solar markets.  Revenue in the company's Semiconductor Materials business was lower sequentially driven by weaker pricing, and lower year-over-year due to lower volume and pricing.  As of January 1, 2012, the Solar Materials and SunEdison segments were combined into one Solar Energy segment.  Solar Energy revenue declined sharply both sequentially and year-over-year, sequentially primarily due to lower projects sales and year-over-year on lower silicon wafer volumes and pricing.  A major factor in weaker solar wafer volumes was the company's previously announced move away from external solar wafer sales.  For the first quarter of 2012, SunEdison recognized non-GAAP revenue on 49 MW of solar energy systems sales, down 55% sequentially and down 11% year-over-year.  SunEdison's project pipeline fell slightly relative to the prior quarter to 2.9 GW.

"We believe the 2012 first quarter represented a turning point for our Semiconductor Materials business," said MEMC's Chief Executive Officer Ahmad Chatila.  "Already in the second quarter, we are seeing improved order volumes and firming pricing.  Although solar markets remain challenging, we are restructuring our business to lower costs and improve our competitive position.  Our restructuring activities remain on track, and we remain committed to driving improved results while maintaining a focus on cash flow generation and liquidity."

Revenue

GAAP revenue for the first quarter was $519.2 million, representing a decline of 29% from $735.9 million in the first quarter of 2011 and a decrease of 28% from $717.8 million in the fourth quarter of 2011.  The year-over-year decline was due to lower solar and semiconductor wafer volume and pricing, partially offset by sales of excess polysilicon inventory, higher solar project direct sales and solar energy revenue.  The sequential decrease was primarily driven by lower solar project sales, significantly lower solar wafer volume and pricing and weaker semiconductor wafer volume and pricing.  Solar wafer sales to external parties are expected to decline to minimal levels due to the company's strategic shift to primarily supplying wafers for internal consumption.

Non-GAAP revenue for the quarter was $523.8 million, a decrease of 37% from $832.6 million in the 2011 first quarter and a decrease of 32% from $772.1 million in the 2011 fourth quarter.  The year-over-year and sequential declines were due to lower solar and semiconductor wafer volume and pricing and lower solar energy system sales.  Non-GAAP revenue for the 2012 first quarter includes $4.6 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 first quarter was 10.9%, compared to 15.5% in the first quarter of 2011 and (8.2%) in the 2011 fourth quarter.  Restructuring, impairment and other charges negatively affected GAAP gross margin in the 2011 fourth quarter. Non-GAAP gross margin was 10.0% in the 2012 first quarter, compared to 18.0% in the 2011 first quarter and adjusted non-GAAP gross margin of 11.6% in the 2011 fourth quarter, which excluded restructuring, impairment  and other related charges.  GAAP and non-GAAP gross margin were negatively affected sequentially and year-over-year by weaker solar wafer pricing, lower semiconductor wafer pricing and a less favorable SunEdison project mix.  First quarter 2012 non-GAAP gross margin was lower than GAAP gross margin due to the recognition of GAAP revenue in the 2012 first quarter associated with deferred revenue from projects recognized under non-GAAP in the 2011 third quarter.

Net Income (Loss)

GAAP net loss for the 2012 first quarter was $92.0 million, or ($0.40) per share, compared to a net loss of $4.5 million, or ($0.02) per share, in the 2011 first quarter and a net loss of $1,484.4 million, or ($6.44) per share, in the 2011 fourth quarter.  Fourth quarter 2011 net loss included charges of $1,401.2 million due to restructuring, impairment and other charges, as described below and in the company's February 15, 2012 earnings release.

Non-GAAP net loss for the 2012 first quarter was $59.4 million, or ($0.26) per share, compared to non-GAAP net income of $21.5 million, or $0.09 per share, in the 2011 first quarter and adjusted non-GAAP net loss in the 2011 fourth quarter of $48.9 million, or ($0.21) per share.  Adjusted non-GAAP net loss in the 2011 fourth quarter excluded restructuring, impairment and other charges of $1,401.2 million.  Non-GAAP net loss includes the company's customary adjustments related to its SunEdison project development business.

Cash Flow

During the 2012 first quarter, cash used in operations was $386.7 million.  Non-recourse project financing partially offset negative operating cash flow.  Free cash flow use was $241.0 million.  Negative operating and free cash flow were primarily driven by increased working capital necessary to fund the construction of solar energy projects, including those held for sale.  See the reconciliation of free cash flow in the financial statement tables at the end of this press release.

Capital expenditures were $40.0 million in the 2012 first quarter, down from $205.4 million in the 2011 first quarter and $58.5 million in the 2011 fourth quarter.

Construction of solar energy systems of $99.0 million in the 2012 first 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 first quarter with cash and cash equivalents of $380.6 million, a decrease of $205.2 million from the prior quarter, driven primarily by vendor payments and higher solar energy systems held for development and sale.  Unrestricted cash and unused corporate revolver capacity was $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.

As part of the company's restructuring plan, effective January 1, 2012, the Solar Materials and SunEdison business units were consolidated into one business unit, and since that date the company has been engaged in two reportable business segments, Semiconductor Materials and Solar Energy.

Following is additional detail on first quarter 2012 results by segment.

Semiconductor Materials

Semiconductor Materials GAAP revenue was $216.0 million, a decrease of 14% compared to the 2011 first quarter and a decrease of 5% compared to the 2011 fourth quarter.  The year-over-year decline was primarily due to lower small diameter wafer volume and weaker pricing across all diameters, partially offset by higher large diameter wafer volume.  The sequential decrease was primarily driven by weaker wafer pricing across all diameters.

Segment operating loss was $12.5 million, compared to operating profit of $8.4 million in the 2011 first quarter and an operating loss of $61.4 million in the 2011 fourth quarter.  Operating loss in the 2012 first quarter includes a $4.0 million insurance recovery related to the March 2011 Japan earthquake, more than offset by consulting charges related to ongoing productivity initiatives.  Operating profit in the 2011 first quarter includes a $9.3 million unfavorable impact related to the earthquake in Japan.  Operating loss in the 2011 fourth quarter includes restructuring, impairment and other charges of $62.2 million and a net $3.2 million insurance recovery.

Solar Energy

Solar Energy GAAP revenue was $303.2 million, a 37% decrease from the 2011 first quarter and a 38% decrease from the 2011 fourth quarter.  The year-over-year decline was driven by significantly weaker solar wafer volume and pricing, partially offset by higher solar project sales.  The sequential decline was driven by weaker solar wafer pricing and volume and lower solar project sales, partially offset by higher solar project average pricing.  Solar energy projects representing 47 MW were recognized under segment GAAP revenue in the 2012 first quarter, compared to 40 MW in the 2011 first quarter and 102 MW in the 2011 fourth quarter.

Segment GAAP operating loss was $10.5 million, compared to operating profit of $32.8 million in the 2011 first quarter and operating loss of $1,162.7 million in the 2011 fourth quarter.  Fourth quarter 2011 segment operating loss included restructuring, impairment and other charges of $1,117.1 million.

Segment non-GAAP revenue for the 2012 first quarter was $307.8 million, compared to $581.1 million in the 2011 first quarter and $544.2 million in the 2011 fourth quarter.  First quarter 2012 non-GAAP revenue includes net adjustments of $4.6 million related to direct sale and sale-leaseback transactions.  Solar projects representing 49 MW were recognized under segment non-GAAP revenue, of which 45 MW were direct sales and 4 MW were sale-leaseback transactions.

Solar projects interconnected during the 2012 first quarter represented 149 MW in 24 projects, including 111 MW of direct sales projects, 1 MW of sale-leaseback projects, and 37 MW of debt financed projects.  All of the debt financed projects interconnected in the 2012 first quarter are located in India, where local statutory ownership requirements mandate certain minimum ownership and minimum holding periods.  We intend to monetize our share of these projects as local restrictions allow.  Approximately $274.7 million worth of projects in Europe are classified on the balance sheet as projects held for sale.  We intend to sell these European projects, including a 60 MW project in Bulgaria, in 2012.

First quarter 2012 segment non-GAAP operating loss was $14.7 million, compared to non-GAAP operating income of $68.4 million in the 2011 first quarter and adjusted non-GAAP operating income of $5.7 million in the 2011 fourth quarter.  Fourth quarter 2011 segment adjusted non-GAAP operating income excluded $1,117.1 million related to restructuring, impairment and other charges.  The year-over-year and sequential declines were driven by weaker upstream margins and lower solar project operating profits.

Solar Energy ended the 2012 first quarter with a pipeline of 2.9 GW, down slightly relative to the 3.0 GW pipeline at the end of the 2011 fourth quarter and up over 50% from the 1.9 GW pipeline at the end of the 2011 first quarter.  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 March 31, 2012, 147 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 $24.6 million in the 2012 first quarter, compared to $41.4 million in the 2011 first quarter and $24.1 million in the 2011 fourth quarter.  The year-over-year decline reflected a $13.1 million charge related to net legal proceeding verdicts and settlements and higher corporate overhead within the 2011 first quarter.

Restructuring Update

During the 2011 fourth quarter, the company initiated various restructuring actions in order to better align its operations relative to current and expected business conditions in the semiconductor and solar markets, with the goal of improving its competitive position, lowering ongoing operating costs and increasing cash flow generation across its business segments.  The restructuring actions included the shuttering of the polysilicon manufacturing plant in Merano, Italy, capacity reduction at the Portland, Oregon and Kuching, Malaysia facilities, supplier contract terminations, a reduction in the company's global workforce and the write-down of certain impaired assets and goodwill in its entirety.  These activities are generally proceeding on plan and should be largely completed in 2012.

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.  Instead, we are providing information on how we view the markets we serve and our position in those markets.  Accordingly, the company expects the following, assuming no significant worldwide economic issues or other exogenous shocks in 2012:

For the second quarter 2012:

    Semiconductor revenue up 5%-10% in Q2 2012 vs. Q1 2012
    Solar energy systems non-GAAP sales volume in the range of 130 MW to 170 MW
    Solar energy systems average pricing of approximately $3.50/watt
    Operating expenses less than $110 million
    Capital spending less than $50 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 less than $375 million
    Capital spending less than $175 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. Finally, because the vast majority of the restructuring, goodwill and other related charges and the unfavorable tax consequences from the GAAP financial measures are non-cash charges unrelated to ongoing operations, management determined that including among the non-GAAP financial performance measures that are presented herein, the adjusted non-GAAP financial performance measures excluding these charges would be useful as more representative of the operating results of the relevant reporting periods.  For a complete description of our non-GAAP measures, see the non-GAAP reconciliation tables below.

Conference Call

MEMC will host a conference call today, May 9, 2012, at 5:30 p.m. ET to discuss the company's 2012 first quarter results, 2012 outlook and related business matters. A live webcast will be available on the company's web site at www.memc.com.

A replay of the conference call will be available from 7:30 p.m. ET on May 9, 2012, until 11:59 p.m. ET on May 16, 2012.  To access the replay, please dial (320) 365-3844 at any time during that period, using passcode 246633. A replay will also be available on the company's web site at www.memc.com.

About MEMC

MEMC is a global leader in semiconductor and solar technology.  MEMC has been a pioneer in the design and development of silicon wafer technologies for over 50 years.  With R&D and manufacturing facilities in the U.S., Europe, and Asia, MEMC enables the next generation of high performance semiconductor devices and solar cells.  Through its SunEdison subsidiary, MEMC is also a developer of solar power projects and a worldwide leader in solar energy services.  MEMC's common stock is listed on the New York Stock Exchange under the symbol "WFR."  For more information about MEMC, please visit www.memc.com.