STR Holdings Reports Fourth Quarter and 2009 Financial Results , Improved Solar Market

Solar News - STR Holdings Reports Fourth Quarter and 2009 Financial Results
- Fourth Quarter Earnings Growth Driven by Improved Solar Market -

ENFIELD, Conn-STR Holdings, Inc. (NYSE: STRI) announced financial results for the fourth quarter and year ended December 31, 2009.

2009 Fourth Quarter Highlights include:


•Consolidated net sales rose 6.1% to $79.9 million compared with $75.4 million in the fourth quarter of 2008
•Diluted EPS of $0.23 vs. $0.09 a year ago; non-GAAP diluted EPS of $0.42 vs. $0.15 a year ago
•Solar net sales rose 42.3% to $50.3 million on a quarterly sequential basis and 4.2% compared with the same quarter last year
•Quality Assurance net sales of $29.6 million rose 9.4% compared with the fourth quarter of 2008
•Solar adjusted EBITDA rose 45.6% to $24.0 million on a quarterly sequential basis and 55.6% compared with the same quarter last year
•Operating cash flow of $11.2 million exceeded net income.

Fourth Quarter Financial Results

Solar segment net sales for the fourth quarter ended December 31, 2009 increased 42.3% on a quarterly sequential basis to $50.3 million and rose 4.2% from $48.3 million a year ago.

Solar segment adjusted EBITDA for the fourth quarter of 2009 was $24.0 million, up 45.6% from $16.5 million on a quarterly sequential basis as a result of a 43% increase in sales volume, improved labor efficiencies and favorable fixed cost absorption. Compared to the fourth quarter of 2008, Solar segment adjusted EBITDA is up 55.6% from $15.4 million. This is partially due to a $4.2 million charge to cost of goods sold in 2008 for a product performance claim related to a product that the Company discontinued in 2006.

Chairman, President and Chief Executive Officer Dennis L. Jilot stated, “As macro-economic conditions continue to improve, we are pleased with our solar segment’s fourth quarter results. Our revenue grew sequentially by 42.3% as expected reductions to solar subsidies in Germany and Italy and a favorably mild winter in Europe drove stronger-than-anticipated demand during the quarter. As the only encapsulant provider with manufacturing and distribution capabilities in North America, Europe and Asia, STR’s global footprint continues to be a key differentiator for us. This quarter, utilization of our Malaysian plant enabled us to increase our market penetration in Asia, including an increase in sales volume in China. Gross margin improved to 43.8%, a 550 basis point expansion from the third quarter of 2009.”

STR’s Quality Assurance (QA) segment net sales for the fourth quarter of 2009 rose 9.4% to $29.6 million, compared with $27.1 million a year ago as a result of increased testing for toy and private label markets as well as increased demand for its Responsible Sourcing social accountability services. QA adjusted EBITDA rose 8.0% to $5.8 million, from $5.4 million a year ago.

Selling, general and administrative expense for the fourth quarter of 2009 rose 132.0% to $18.8 million, compared with the same quarter last year. This increase was primarily the result of a $2.6 million one-time payment in connection with the termination of a 2007 advisory services agreement with DLJ Merchant Banking Partners, and an increase of approximately $5.1 million in non-cash stock-based compensation expense mainly due to the issuance of stock options to replace certain pre-IPO incentive units as a result of the change in capital structure from a limited liability company to a corporation.

Net income for the fourth quarter of 2009 rose 174.5% to $8.9 million or $0.23 on a diluted EPS basis, compared with $3.2 million, or $0.09 on a diluted EPS basis during the fourth quarter of 2008.

Non-GAAP net income for the fourth quarter of 2009 rose 194.3% to $16.5 million, or $0.42 on a diluted EPS basis. This compared with non-GAAP net income of $5.6 million, or $0.15 on a diluted EPS basis, for the fourth quarter of 2008, (See discussion of non-GAAP financial measures and the reconciliation table below for details).

During the fourth quarter of 2009, the Company generated $11.2 million of operating cash flow, up 28.9% from $8.7 million a year ago. Free cash flow, which is defined as operating cash flow less capital expenditures, increased 279%, or $10.7 million from the fourth quarter of 2008 mainly as a result of increased earnings, lower spending on capacity expansion and improved working capital performance.

STR’s Executive Vice President and Chief Financial Officer Barry A. Morris stated, “Our capital expenditures for 2009 totaled $17.8 million. We entered 2010 with our solar capacity utilization at approximately 55% and based on our growth projections, we anticipate beginning to fund our 2011 capacity expansion needs during the first half of 2010. Our strong balance sheet and operating cash flows give us the ability to internally fund expansion currently under development and provide us with flexibility in our pursuit of shareholder value creation.”

Financial Results for the year ended December 31, 2009:


•Total net sales were $264.9 million, compared with $288.6 million a year ago. Solar net sales were $149.5 million, down $32.8 million from $182.3 million a year ago, primarily attributable to an industry-wide over-supply of module inventory that resulted from unfavorable macro-economic conditions as well as the fourth quarter 2008 cut to the solar subsidy in Spain. QA net sales totaled $115.4 million, up from $106.3 million for 2008 due to strong demand and benefit from the increased regulatory environment
•Gross profit on a consolidated basis was $98.0 million, compared with $113.9 million in 2008
•Net income on a consolidated basis was $23.0 million, or $0.61 per diluted share, compared with $28.1 million, or $0.75 per diluted share, for 2008
•Non-GAAP net income for 2009 was $38.3 million, or $1.02 per diluted share, compared with $37.9 million, or $1.01 per diluted share for 2008
•Operating cash flow amounted to $47.9 million for the full year 2009, compared to $47.7 million for 2008.

Business Outlook

Mr. Jilot added, “Looking at the fourth quarter of 2009 and the first quarter of 2010, the anticipated changes to solar incentives in Germany and Italy have accelerated sales throughout the solar module supply chain. While we believe this is a long-term positive development for the industry, we expect that it could cause atypical sequential growth for STR compared with historical quarterly sales patterns. Overall, STR has a positive outlook for 2010 supported by our continued momentum into Asia, ambitious goals for clean energy in the United States, and the overall decline in module prices that we expect will increase end-user volume.”

The Company is providing the following first quarter and full year 2010 financial guidance, which it will discuss in greater detail on the conference call:



(Amounts in millions, except per share amounts)
Quarter Ending March 31, 2010 Low High
Solar net sales $ 52.0 $ 55.0
QA net sales 25.0 26.0
Total net sales 77.0 81.0
Diluted non-GAAP EPS $ 0.23 $ 0.25

Year Ending December 31, 2010 Low High
Solar net sales $ 185.0 $ 200.0
QA net sales 125.0 130.0
Total net sales 310.0 330.0
Diluted non-GAAP EPS $ 1.05 $ 1.10



Conference Call

STR will discuss these results for the fourth quarter and year ended December 31, 2009, as well as provide its business outlook for the first quarter and year ended December 31, 2010 in a conference call scheduled today, at 4:15 p.m. EDT. Dennis L. Jilot, Chairman, President and Chief Executive Officer and Barry A. Morris, Executive Vice President and Chief Financial Officer will host the call. Investors interested in participating in the live call from the U.S. should dial 866-700-0161 and enter passcode: 21726879. Those calling from outside the U.S. should dial 617-213-8832 and use the same passcode. A telephone replay will be available approximately two hours after the call concludes through Wednesday, March 31, 2010 by dialing 888-286-8010 from the U.S., or 617-801-6888 from international locations, and entering passcode: 86593293. There also will be a simultaneous live webcast available on the Investor Relations section of the Company’s website at http://www.strholdings.com. The webcast will be archived on the website for 365 days.

About STR Holdings, Inc.

STR Holdings, Inc. is a diversified global leader providing high quality, superior performance solar encapsulants to the photovoltaic module industry. It is also one of the world’s top providers of quality assurance testing, audit, inspection and responsible sourcing services. STR works with over 5,100 manufacturers, importers, raw materials suppliers and retailers around the globe to ensure that they have the highest level of confidence in the quality and safety of their products and the social standards of the supply chain producing them. Further information about STR Holdings, Inc. can be obtained via the Company’s website at http://www.strholdings.com.

Forward Looking Statements

This press release and any oral statement made in respect of the information in 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 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 release, the Company faces risks and uncertainties that include, but are not limited to, the following: (i) demand for solar energy in general and solar modules in particular; (ii) the timing and effects of the implementation of recently announced government incentives and policies for renewable energy, primarily in China and the United States; (iii) the effects of the recently announced proposed cut to solar incentives in Germany and Italy; (iv) customer concentration in the Company’s solar business and our relationships with key customers; (v) the continual operation of the Company’s Malaysian plant which commenced shipments in August 2009; (vi) the need to utilize its existing $20 million revolving credit facility, and the ability to further access the credit markets on acceptable terms; (vii) maintaining sufficient liquidity in order to fund future profitable growth and long term vitality; (viii) the continuing effects of the ongoing recession on sales; (ix) pricing pressures and other competitive factors; (x) the impact of the current negative credit markets may have on the Company or its customers or suppliers; (xi) loss of professional accreditations and memberships; (xii) the extent to which the Company may be required to write-off accounts receivable or inventory; (xiii) the Company’s reliance on vendors and potential supply chain disruptions, including those resulting from bankruptcy filings by customers or vendors; (xiv) any potential inflation of commodity costs, including paper and resin used in the Company’s encapsulants, and the Company’s ability to successfully manage any increases in these commodity costs; (xv) potential product performance matters, product liability or professional liability claims and the Company’s ability to manage them; (xvi) the impact of changes in foreign currency exchange rates on financial results, and the geographic distribution of revenues and earnings; (xvii) the impact of changes in interest rates in relation to the Company’s variable rate debt; (xviii) the impact of events that cause or may cause disruption in the Company inspection, testing, manufacturing, distribution and sales networks such as war, terrorist activities, and political unrest; (xix) the extent and duration of the current recession in the global economy, including the timing of expected economic recovery in the United States and abroad; (xx) outcomes of litigation and regulatory actions; (xxi) our ability to protect our intellectual property and (xxii) the other risks and uncertainties described under “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s prospectus filed with the SEC on November 9, 2009 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.strholdings.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. The Company undertakes 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.

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