November 12, 2013

STR Holdings, Inc. Reports Third Quarter 2013 Results and Updates Strategic Plan

ENFIELD, Conn., Nov. 12, 2013 (GLOBE NEWSWIRE) -- STR Holdings, Inc. (NYSE:STRI) today announced its financial results for the third quarter of 2013 and provided an update on its business and its strategic plan.

Third Quarter 2013 Financial Summary:

  • Net sales of $6.2 million
  • Initial next-generation EVA encapsulant sales of $2.7 million
  • Diluted GAAP loss per share from continuing operations of $(0.14); Diluted non-GAAP loss per share from continuing operations of $(0.12) which included an unfavorable income tax impact of ($0.04)
  • Finished the quarter with $62.2 million in cash and no debt

Strategy Update

China

Last quarter, the Company announced that its next-generation EVA encapsulant product launch was delayed due to feedback from some prospective customers that a feature of its product was not optimally matched to their lamination process. During the third quarter, the Company refined its next-generation encapsulant to broaden its process window. Following favorable results from subsequent customer evaluations, the Company has delivered production-scale orders of its next-generation encapsulants to certain module manufacturers, including certain of its China Tier One module manufacturer prospects. The Company has also received repeat orders for its next-generation products and is seeking production-scale orders from Chinese module manufacturers during the fourth quarter of 2013.

Since the Company's product launch was delayed, and in order to conserve cash, the Company has idled the renovation of its leased facility in China. However, to meet anticipated demand for its next-generation products, the Company will seek to outsource the production of its next-generation encapsulant to one or more China-based manufacturers.

Closing of Malaysian Facility and Other Cost-Reduction Efforts

In light of the continued shift in module manufacturing to mainland China, and the requirement within this growing market for just-in-time delivery, the Company intends to cease production at its Johor, Malaysia facility by the end of the first quarter of 2014. The Company expects to incur approximately $0.5 to $0.7 million of associated non-recurring cost during the fourth quarter of 2013 and further expects to generate approximately $2.0 million of associated annual pre-tax savings.

During the third quarter of 2013, the Company reduced its headcount at its Connecticut facilities. The Company incurred $0.3 million of related severance expense, and is expected to generate approximately $1.3 million of associated annual pre-tax savings. In October 2013, the Company also streamlined its operations and eliminated the positions of Chief Operating Officer, Vice President of Human Resources, Chief Technology Officer and Vice President of Finance, effective November 15, 2013, transferring responsibilities to others in the organization. The Company expects to incur approximately $0.8 million of related severance and other benefits during the fourth quarter of 2013 and further expects to generate approximately $1.1 million of associated annual pre-tax savings.

On-Going Assessment of Our Business and Strategic Alternatives

The Company is actively monitoring and evaluating its short-term financial and operational performance, including sales levels for new products and its ability to enter into satisfactory outsource arrangements with China-based manufacturers. In addition, the Company's Strategic Transaction Committee, together with its independent advisors and the Company's senior management team, continues to actively review, analyze and make recommendations to the STR Board of Directors regarding potential strategic alternatives. For additional information and a discussion of related risks and uncertainties, please see our filings with the Securities and Exchange Commission, including our Quarterly Report on Form 10-Q for the quarter ended September 30, 2013.

Financial Results

Net sales for the quarter ended September 30, 2013 were $6.2 million of which $2.7 million related to initial sales of our next—generation EVA encapsulant to new and existing customers. This represents a decline of approximately 20% sequentially and 73% from Q3 2012. On a year-over-year basis, volume declined in the third quarter of 2013 by approximately 64% and our average sale price ("ASP") declined by approximately 19%. On a sequential basis, the decrease was driven by a volume decline of approximately 13% and a 7% decrease in ASP. The decline in sales volume was mainly due to the final scale down of First Solar as a customer and one of the Company's largest customers filed an insolvency petition in July 2013. As such, shipments were reduced to this customer as it restarted production towards the end of the third quarter of 2013. These negative impacts more than offset initial net sales generated from the Company's next-generation EVA encapsulant to new customers.

Gross profit for the third quarter of 2013 was a loss of $(0.8) million, or (13.2)% of sales, compared to $0.4 million, or 4.6% of sales, for the second quarter of 2013. Gross profit as a percentage of net sales decreased for the three-month period ended September 30, 2013, compared to the three-month period ended June 30, 2013, mainly as a result of a 7% ASP decrease and lower absorption of fixed costs allocated with the sales volume decline.

Selling, general and administrative expenses for the third quarter of 2013 were $4.6 million compared to $4.3 million in the second quarter of 2013. The increase was driven by a $0.4 million increase in restructuring charges and a $0.3 million increase in professional fees. These increases were offset by a $0.2 million decrease in non-cash, stock-based compensation and benefits from recent cost—reduction efforts.

Net loss from continuing operations for the third quarter of 2013 was $(5.9) million, or $(0.14) per diluted share. This compares to a net loss from continuing operations of $(4.5) million, or $(0.11) per diluted share, for the second quarter of 2013 and a net loss from continuing operations of $(3.6) million, or $(0.09) per diluted share, for the third quarter of 2012.

Non-GAAP net loss from continuing operations for the third quarter of 2013, which excludes certain tax-effected adjustments (as disclosed following the non-GAAP reconciliation table at the end of this press release), was $(5.1) million, or $(0.12) per diluted share. The Company recorded a $(0.04) negative impact in the third quarter of 2013 relating to its projected annual effective tax rate due to lower-than-anticipated profitability at its Malaysia facility where it possess a tax holiday. This compares to non-GAAP net loss from continuing operations of $(3.9) million, or $(0.09) per diluted share, for the second quarter of 2013 and non-GAAP net loss from continuing operations of $(1.1) million, or $(0.03) per diluted share, for the third quarter of 2012.

Liquidity

The Company finished the quarter with $62.2 million of cash and no debt. During the third quarter of 2013, the Company's cash balance was reduced by $10.0 million primarily due to negative EBITDA and a $4.9 million negative working capital impact, primarily associated with the delay of its next-generation encapsulant product launch. As of September 30, 2013, the Company believes it has sufficient inventory to execute its product launch and expects to recover its working capital investment as it fulfills anticipated customer orders.

As of September 30, 2013, the Company also had $9.6 million of income tax receivables, of which approximately $7.0 million relates to income tax returns filed in 2012.

Guidance

As a reminder and as disclosed on its last conference call, the Company is no longer providing quarterly and annual guidance for sales, non-GAAP EPS or cash.

Third Quarter Conference Call and Presentation

Due to continued cost-reduction efforts, the Company will not host a quarterly conference call. The Company will continue to report its financial results and other events in the normal course of filing its Form 10-K, 10-Q and 8-K's with the Securities and Exchange Commission.

About STR Holdings, Inc.

STR Holdings, Inc. is a global 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 and any oral statement made in respect of the information in this press release contain 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 press release, the Company faces risks and uncertainties that include, but are not limited to, the following: (1) the potential impact of pursuing strategic alternatives; (2) the potential impact of any merger or acquisition transactions or the dissolution and liquidation of our Company; (3) our potential inability to obtain satisfactory orders from Chinese module manufacturers for our new encapsulant products or to enter into satisfactory outsource arrangements with China-based encapsulant manufacturers on a timely basis or at all; (4) customer concentration in our business and our relationships with and dependence on key customers; (5) 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, particularly in China; (6) incurring losses for the foreseeable future; (7) our operations being subject to political and economic uncertainties in China; (8) limited legal recourse in China if disputes arise; (9) the potential inability to protect our intellectual property during the outsourcing of our products; (10) our ability to increase our market share; (11) product pricing pressures and other competitive factors; (12) excess capacity in the solar supply chain; (13) the extent to which we may be required to write off accounts receivable, inventory or other assets; (14) trade complaints and lawsuits diminishing the growth of the solar industry; (15) demand for solar energy in general and solar modules in particular; (16) the extent and duration of the current downturn in the global economy; (17) the impact negative credit markets may have on us or our customers or suppliers; (18) the timing and effects of the implementation of government incentives and policies for renewable energy, primarily in China and the United States; (19) the effects of the announced reductions to solar incentives in Germany and Italy; (20) operating new manufacturing facilities and increasing production capacity at existing facilities; (21) volatility in commodity costs, such as resin or paper used in our encapsulants, and our ability to successfully manage any increases in these commodity costs; (22) our dependence on a limited number of third-party suppliers for raw materials for our encapsulants and materials used in our processes; (23) our reliance on vendors and potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (24) potential product performance matters and product liability; (25) our ability to protect our intellectual property; (26) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (27) maintaining sufficient liquidity in order to fund future profitable growth and long-term vitality; (28) outcomes of litigation and regulatory actions; and (29) 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 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 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 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 September 30,Nine Months Ended September 30,
 2013201220132012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
         
Net sales  $ 6,219  $ 23,092  $ 25,189  $ 79,294
Cost of sales  7,040  22,510  26,352  75,127
         
Gross (loss) profit  (821)  582  (1,163)  4,167
         
Selling, general and administrative expenses  4,570  4,781  13,012  17,044
Research and development expense  703  1,063  2,316  3,254
(Recovery) provision for bad debt expense  (138)  47  2,100  497
Goodwill impairment  --  --   --  82,524
Operating loss  (5,956)  (5,309)  (18,591)  (99,152)
         
Other (loss) income  (246)  (1,070)  (390)  5,771
Loss from continuing operations before income tax benefit  (6,202)  (6,379)  (18,981)  (93,381)
Income tax benefit from continuing operations  (268)  (2,800)  (4,346)  (5,250)
Net loss from continuing operations  (5,934)  (3,579)  (14,635)  (88,131)
         
Discontinued operations:        
Earnings from discontinued operations before income tax expense  --  --  --  --
Income tax expense from discontinued operations  --  (4,246)  --  (4,246)
Net earnings from discontinued operations  --  4,246  --  4,246
         
Net (loss) earnings   $ (5,934)  $ 667  $ (14,635)  $ (83,885)
         
GAAP net (loss) earnings per share:        
Basic from continuing operations  $ (0.14)  $ (0.09)  $ (0.35)  $ (2.13)
Basic from discontinued operations  $ --  $ 0.11  $ --  $ 0.10
Total basic GAAP net (loss) earnings per share  $ (0.14)  $ 0.02  $ (0.35)  $ (2.03)
         
Diluted from continuing operations  $ (0.14)  $ (0.09)  $ (0.35)  $ (2.13)
Diluted from discontinued operations  $ --  $ 0.11  $ --  $ 0.10
Total diluted GAAP net (loss) earnings per share  $ (0.14)  $ 0.02  $ (0.35)  $ (2.03)
         
(1) Non-GAAP net (loss) earnings per share:        
Basic from continuing operations  $ (0.12)  $ (0.03)  $ (0.29)  $ 0.05
Basic from discontinued operations  $ --  $ 0.11  $ --  $ 0.10
Total basic non-GAAP net (loss) earnings per share  $ (0.12)  $ 0.08  $ (0.29)  $ 0.15
         
Diluted from continuing operations  $ (0.12)  $ (0.03)  $ (0.29)  $ 0.05
Diluted from discontinued operations  $ --  $ 0.11  $ --  $ 0.10
Total diluted non-GAAP net (loss) earnings per share  $ (0.12)  $ 0.08  $ (0.29)  $ 0.15
         
Weighted-average common shares outstanding:        
Basic shares outstanding GAAP  41,695,010  41,439,827  41,598,103  41,277,975
(2) Diluted shares outstanding GAAP  41,695,010  41,439,827  41,598,103  41,277,975
Stock options  --  --  --  --
Restricted common stock  --  --  --  151
(2) Diluted shares outstanding non-GAAP  41,695,010  41,439,827  41,598,103  41,278,126
         
(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) earnings per share included in this press release.
 
 
STR Holdings, Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
All amounts in thousands
     
 September 30, 2013December 31, 2012
   (Unaudited)   (Unaudited) 
ASSETS    
CURRENT ASSETS    
Cash and cash equivalents  $ 62,249  $ 81,985
Accounts receivable, net  2,983  5,316
Inventories, net  10,661  8,585
Other current assets  13,538  10,732
Total current assets  89,431  106,618
     
Property, plant and equipment, net  28,669  27,750
Other noncurrent assets  13,688  12,796
Total assets  $ 131,788  $ 147,164
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
CURRENT LIABILITIES    
Accounts payable  $ 3,124  $ 2,893
Accrued liabilities  7,401  10,376
Other current liabilities  747  -- 
Income taxes payable  848  917
Total current liabilities  12,120  14,186
     
 Long-term liabilities  4,819  5,539
Total liabilities  16,939  19,725
     
STOCKHOLDERS' EQUITY    
Stockholders' equity  114,849  127,439
Total liabilities and stockholders' equity  $ 131,788  $ 147,164
 
 
STR Holdings, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
All amounts in thousands
         
 Three Months Ended September 30,Nine Months Ended September 30,
 2013201220132012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
OPERATING ACTIVITIES        
Net (loss) earnings  $ (5,934)  $ 667  $ (14,635)  $ (83,885)
Net earnings from discontinued operations  --   4,246  --   4,246
Net loss from continuing operations  (5,934)  (3,579)  (14,635)  (88,131)
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:        
Depreciation   487  2,042  1,503  6,157
Goodwill impairment  --  --  --  82,524
Amortization of intangibles  --  2,107  --  6,323
Amortization of deferred financing costs  12  55  46  218
Write-off of deferred debt costs  143  844  143  844
Stock-based compensation expense  563  704  1,677  3,682
Loss on disposal of property, plant and equipment  --  2  --  2
(Recovery) provision for bad debt expense  (138)  47  2,100  497
Deferred income tax (benefit)  (125)  (1,244)  (187)  (3,055)
Changes in operating assets and liabilities  (4,859)  (1,961)  (9,462)  19,138
Other, net  12  250  310  365
Net cash (used in) provided by continuing operations  (9,839)  (733)  (18,505)  28,564
Net cash provided by (used in) discontinued operations  --  --  834  (5,786)
Total net cash (used in) provided by operating activities  (9,839)  (733)  (17,671)  22,778
         
INVESTING ACTIVITIES        
Capital expenditures  (402)  (1,052)  (2,159)  (10,477)
Net cash used in continuing operations  (402)  (1,052)  (2,159)  (10,477)
Net cash used in discontinued operations  --  --  --  --
Total net cash used in investing activities  (402)  (1,052)  (2,159)  (10,477)
         
FINANCING ACTIVITIES        
Net cash provided by (used in) continuing operations  4  (24)  18  1
Net cash used in discontinued operations  --  --  --  --
Total net cash provided by (used in) financing activities  4  (24)  18  1
         
Effect of exchange rate changes on cash  213  243  76  (471)
         
Net change in cash and cash equivalents   (10,024)  (1,566)  (19,736)  11,831
Cash and cash equivalents, beginning of period  72,273  72,191  81,985  58,794
Cash and cash equivalents, end of period  $ 62,249  $ 70,625  $ 62,249  $ 70,625
         
* Free cash flow from continuing operations  $ (10,241)  $ (1,785)  $ (20,664)  $ 18,087
         
* Please refer to the reconciliation of non-GAAP measures included in this press release.
 
 
STR Holdings, Inc.
RECONCILIATION OF NON-GAAP MEASURES
All amounts in thousands except shares and per share amounts
         
 Three Months Ended September 30,Nine Months Ended September 30,
 2013201220132012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Non-GAAP (Loss) Earnings Per Share        
Net loss from continuing operations  $ (5,934)  $ (3,579)  $ (14,635)  $ (88,131)
Adjustments to net loss from continuing operations:        
Amortization of intangibles  --  2,107  --   6,323
Amortization of deferred financing costs  155  899  189  1,062
Stock-based compensation expense  563  704  1,677  3,682
Restructuring   491  --  2,155  --
Goodwill impairment  --  --  --   82,524
Tax effect of non-GAAP adjustments  (397)  (1,254)  (1,328)  (3,639)
Non-GAAP net (loss) earnings from continuing operations  $ (5,122)  $ (1,123)  $ (11,942)  $ 1,821
         
Non-GAAP net (loss) earnings per share:        
Basic from continuing operations  $ (0.12)  $ (0.03)  $ (0.29)  $ 0.05
Diluted from continuing operations  $ (0.12)  $ (0.03)  $ (0.29)  $ 0.05
         
Weighted-average common shares outstanding:        
Basic  41,695,010  41,439,827  41,598,103  41,277,975
(1) Diluted  41,695,010  41,439,827  41,598,103  41,278,126
         
(1) Please refer to the reconciliation of diluted shares outstanding for non-GAAP net (loss) earnings per share included in this press release.
         
  Three Months Ended September 30,  Nine Months Ended September 30, 
 2013201220132012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Free Cash Flow from Continuing Operations        
Cash flow (used in) provided by operations from continuing operations  $ (9,839)  $ (733)  $ (18,505)  $ 28,564
Less:        
Capital expenditures  (402)  (1,052)  (2,159)  (10,477)
Free cash flow  $ (10,241)  $ (1,785)  $ (20,664)  $ 18,087

Non-GAAP Financial Measures

To supplement the Company's condensed consolidated financial statements, which statements are prepared and presented in accordance with generally accepted accounting principles in the United States of America (GAAP), the Company uses non-GAAP financial measures to facilitate better understanding of its operating results. In this press release, there are two non-GAAP financial metrics mentioned: Non-GAAP (loss) earnings per share from continuing operations (EPS) and free cash flow from continuing operations as defined below:

Non-GAAP EPS: The Company believes that non-GAAP EPS from continuing operations provides meaningful supplemental information regarding its 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.

Non-GAAP EPS from continuing operations is defined as net (loss) earnings from continuing operations not including the tax effected impact of deferred financing costs, stock-based compensation, intangible asset amortization expense, restructuring and goodwill impairment divided by the weighted-average common shares outstanding. Please refer to the Company's Form 10-K filed with the Securities and Exchange Commission (SEC) on March 15, 2013, as well as prior SEC filings, for detailed discussion on some of these adjustments that have been recorded in previous periods.

Although the Company uses non-GAAP EPS from continuing operations as a measure to assess the operating performance of its business, non-GAAP EPS from continuing operations has significant limitations as an analytical tool because it excludes certain material costs. Because non-GAAP EPS from continuing operations does not account for these expenses, its utility as a measure of its operating performance has material limitations. Because of these limitations, the Company does not view non-GAAP EPS from continuing operations in isolation and uses other metrics to measure operating performance such as, but not limited to, net sales, gross margin, operating (loss) income, adjusted EBITDA, and net (loss) earnings from continuing operations.

STR Holdings, Inc.
RECONCILIATION OF NON-GAAP SHARES OUTSTANDING
   
 Three Months Ended September 30,Nine Months Ended September 30,
 2013201220132012
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Weighted-average shares outstanding         
Basic shares outstanding GAAP  41,695,010  41,439,827  41,598,103  41,277,975
Diluted shares outstanding GAAP  41,695,010  41,439,827  41,598,103  41,277,975
Stock options  --   --   --   -- 
Restricted common stock  --   --   --   151
Diluted shares outstanding non-GAAP  41,695,010  41,439,827  41,598,103  41,278,126

Diluted GAAP shares outstanding: Due to the loss from continuing operations for the three and nine months ended September 30, 2013, diluted weighted-average common shares outstanding for purposes of our diluted GAAP loss per share does not include 83 and 153 shares of unvested restricted common stock respectively, as these potential awards do not share in any net loss generated by the Company and are anti-dilutive.

Due to a loss from continuing operations during the nine months ended September 30, 2012, the diluted weighted-average common shares outstanding for purposes of our diluted GAAP loss per share does not include 151 shares of unvested restricted common stock respectively, as these potential awards do not share in any loss generated by the Company and are anti-dilutive.

Diluted non-GAAP Shares Outstanding: Due to a net loss from continuing operations during the three and nine months ended September 30, 2013, the diluted weighted-average common shares outstanding for purposes of its diluted GAAP loss per share does not include 83 and 153 shares of unvested restricted common stock respectively, as these potential awards do not share in any loss generated by the Company and are anti-dilutive.

Free Cash Flow from Continuing Operations: The Company believes free cash flow from continuing operations is an important measure of its overall liquidity and its ability to fund future growth and provide a return to shareowners. Free cash flow is defined as operating cash flow from continuing operations excluding cash invested for capital expenditures. A limitation of using free cash flow versus the GAAP measure of cash provided by operating activities as a means for evaluating the Company's business is that free cash flow does not represent the total increase or decrease in the cash balance from operations for the period because it excludes cash used for capital expenditures during the period.

CONTACT: STR Holdings, Inc.

         Joseph C. Radziewicz

         Vice President and Chief Financial Officer

         +1 (860) 758-7325

         joseph.radziewicz@strholdings.com


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