REC Silicon ASA (RECSI) Earnings Call Transcript & Summary

Good day, and welcome to the REC Silicon Quarter 3 Earnings Release Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to James May, CFO. Please go ahead, sir.

Good afternoon, and thank you for your interest in REC Silicon and in attending this conference call. What I'll do is go through a brief description of what we released this morning in terms of the company's earnings results. And then I'll turn it over for a question-and-answer period and answer any questions that you may have. This morning, we announced that the company generated revenues of $30.3 million and EBITDA of $17.9 million. EBITDA includes a 16.9 million -- or a $16 million noncash adjustment due to the settlement of property taxes that I'll discuss in a few moments here. September 30 cash balance was $35.9 million. This represents a $4.3 million increase over the cash balance reported at the beginning of the quarter. Cash flows from operations were $3.6 million and included the EBITDA offset by the noncash charge and a lower working capital investment of $3.3 million. In terms of our sales, silicon gas sales volumes were 746 metric tons for the quarter versus 831 metric tons in Q2 of -- in Q2. The decrease in silicon gas sales volumes was primarily due to lower shipments into China into the PV -- solar PV segment and the lower-end flat panel display applications. Within -- for sales outside of China, remained strong primarily in the semiconductor segment, memory devices and chips as well as the high-end flat panel display. Because of that, overall prices increased by 3.4% during the quarter. In terms of semiconductor polysilicon sales, overall, total polysilicon sales were 174 metric tons -- excuse me, semiconductor-grade polysilicon sales were 174 metric tons, and semiconductor-grade polysilicon prices increased by some 9%. The main driver behind the increase in polysilicon prices was the release of tariffs imposed by China. So now the tariffs on polysilicon -- semiconductor-grade polysilicon going into China is 0. In addition, we sold higher sales volumes of our float zone grade as a percentage of semiconductor -- or total semiconductor sales. So float zone prices increased by 6.1% in total. On -- in terms of the contingent liabilities that we've discussed for the last few years, we've resolved a great deal of those contingent liabilities. In fact, we've decreased our liability by some $44.9 million for the -- during the quarter. First one is the tax examination by the Norwegian Central Tax Office that dropped the investigation of tax years 2009 through 2011. The result of this was a reversal of $2.5 million in tax liability and $4.7 million in interest liability, which results in an increase of $27.3 million in shareholders' equity. Settlement of the property tax dispute with Grant County, Washington I mentioned just a moment before includes the settlement of all tax years under dispute, 2012 through 2015, for payments of $3 million in December of 2020 and 6 annual installments of $1.75 million beginning in December of 2021. This resulted in a noncash contribution to EBITDA of $16 million. The difference is that we now have a note payable with Grant County that has increased the debt carried by the company, which represents the present value of the payments from REC to Grant County. Subsequent to the end of the quarter, we announced that we'd entered into business cooperation agreements with Violet Power and Group14 Technologies to develop a non-Chinese solar PV value chain and, with Group14, to construct a silicon anode battery pilot plant in Moses Lake. On the back of these announcements, we successfully completed a private placement of equity and raised gross proceeds of NOK 1 billion on October 14, 2020. These announcements allow us to project the restart of the FBR facility in Moses Lake. We've targeted the restart decision for -- to make the restart decision by year-end 2021. And then we'll begin the process of restarting, and we expect to have first production near 2023. If conditions develop so that we can restart the plant earlier, we will begin that sequence and attempt to have the plant online at an earlier date. With that, I will turn the conference call over to questions. Thank you.

[Operator Instructions] We will now take the first question from [ K.C. Minchu ], a private investor.

Yes. I've got a couple of questions. One, the China joint venture procurement of 49% ownership, are there any plans to proceed with that? Or will REC remain at 15% ownership?

I think the most likely outcome is that REC Silicon will remain at a 15% ownership at this time. I think looking at the landscape, it's a little difficult to look at an investment in China in terms of the political environment in the United States right now. On the other hand, that plant is a world-class plant. It's a very technological advanced -- technologically advanced, and it has a wonderful opportunity to compete within the polysilicon segment. I think when you look at it, we would really kind of like that to have a larger ownership share sets that we have the influence to go in, get it running at world-class rates and realize the value of the plant. And obviously, that would be the best solution. And if that opportunity arises, we'll definitely take advantage of it. We do have some time to make any decision associated with the plant, what we do with that investment, though.

Good. And also, my second question, is there any activity in the Phase 1 China polysilicon purchases from the…

There's been plenty of talks back and forth -- yes, there have been plenty of talks back and forth between the United States and China to begin implementing the Phase 1 trade agreement. But no, it hasn't -- there's been no effect on polysilicon at this point. I think if you look at the Phase 1 trade agreement, there have been very few successes. And a lot of it comes down to the idea that COVID-19 kind of interrupted things there. I think for me, the bellwether is to look at exports of soybeans from the United States. And while over the past few months, they've increased, they haven't come even close to what the agreement calls for in terms of exports. So from that standpoint, no progress. But on the other hand, we've got a great deal of hope that it will be implemented. I think that the latest international effort right now is associated with the Uighurs due to the human rights issues associated with forced labor and the retraining camps inside of China. A lot of the polysilicon plants in China are located in that region. And if trade sanctions are taken against those polysilicon companies and therefore the cell and module companies, there may be a great deal of backed-up international shipments, which would then provide an impetus to find some solution to the trade war and allow U.S. polysilicon into China. So I hope that answers your question.

It does. And one -- my last question is the FBR-B. I know one time REC in Moses Lake was planning on -- they had designed and was planning on building the third reactor, the FBR-B reactor buildout. Is that still in the plan somewhere down line? Or will this be part of the joint venture with the Group14 and using the higher-purity polysilicon?

Yes. Group14 won't be taking polysilicon. That's the Violet Power side of it. What you're referring to is Reactor 25 and 26, and that may be somewhere in our future. But we know enough about the FBR-A version of the reactors that we have the ability to change the configuration somewhat so that we can get monocrystalline-capable polysilicon.

[Operator Instructions] There are currently no further questions in the queue at this time.

Okay. Let's go ahead and end the conference call. Again, thank you for your interest in REC Silicon. I hope that we've been able to provide some insight into the company and into the opportunities that we have in front of us. If you have additional questions, please feel free to contact our IR representatives that are listed on the release -- the press release for this morning's earnings. Thank you.

Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.