REC Silicon ASA (RECSI) Earnings Call Transcript & Summary

Good evening, and welcome to the REC silicon follow-up Call pursuant to the release that we issued last Friday. I'm Kurt Levens, the CEO. And first, I will kind of just take you through briefly what the release content was again, and then we'll entertain some questions specific to the release and matters that are ancillary to the release. So what we had announced was that we were able to mitigate the impurity issue that we've had in our process. And in the -- as a result of that, a couple of things. First off, we were -- in order to create the isolation, we had to go ahead and bypass and work around a certain area where it had a function of further reduction of another impurity that was not as critical in the process and for our customers. In addition to that, that particular impurity was already within the confines of what the market standard was. So as a result of doing that, we were able to first reduce the impurity that we had to where it was within proper levels; and then second, we entered into an agreement with our customer that would allow us to supply with that market standard specification. We have gone ahead and set up the sample for evaluation, and we will be awaiting feedback. There is a certain amount of time that we've allowed for that process. In the meantime, we are going ahead and producing product and right now, evaluating what potentially a ramp could be through the year. Our target to make the first shipment is the middle of October at this time. And of course, if that changes and when it changes and when we know it's going to change, we will communicate that. So the plan is, we ship in middle of October and prior to that event or around that event, we receive the remainder of prepayment and then we begin a more regular stream of product going to our customer. So that's it in a nutshell. I think it's a good milestone for us, but there's a lot of work still to do in bringing up this process. I'd like to remind everybody that outside of the maybe technology decisions and some of the engineering that was done prior to the past, say, 25 months or so, the reality is, in that span, we've been able to construct -- design, construct, startup, optimize, troubleshoot and now hopefully get our first commercial shipment here in October. So it's been quite an accelerated schedule. When you look at that, given the fact that our plant was shut down for many years before that on the order of -- in different ways, in different phases up over 7 years, but then totally in the space of 4 years or so. So that's where we're at right now. In anticipation that there might be some questions, we decided to have this question and answer. So we will take a little bit of time here to answer questions again that are specific to this particular release.

Yes, there's many questions that have come in, again, some of them are similar in nature, so we'll try to group those like ones together. But to start off with, can you confirm that RSC Silicon's recent production improvements and quality enhancements will result in profitability and shareholder returns in the coming quarters.

I would say that, of course, the things that we've done are so that we could be in line with the specification that's going to satisfy our contract and fulfill our obligation to our customer and therefore, create more value for the shareholders.

There seems to be a number of questions about reaching 100% production by year-end and if that's still our plan.

Yes. As of this time, our target is still to get to a state where we have 100% of our equipment available and in use towards production by the end of the year.

There also seems to be some questions regarding what quality improvements and some of the optimizations that were mentioned, some more details surrounding those.

Okay. Basically, what it entailed is that we changed certain operating parameters, whether that was flows, purchase, mechanical improvements in terms of durability of coatings, contact surfaces and then, in some cases, temporarily bypassing certain areas where there was known contribution of some of these elements. So that is in a general sense, what we focused on.

I'm going through -- there's many questions on when we're going to reach full capacity and the plan for that, which you addressed. In Q2 reporting, you reported $38 million in cash, EBITDA will also likely be negative in Q3 and Q4, even with the prepayment. It seems like cash position is not sufficient and what is the take or your plan for funding going forward?

So we are continuously monitoring and evaluating options for more financing in the event it is needed. We will have more to say when and if it is needed.

There seems to be some questions regarding confidence with respect to avoiding further delays in production and what steps we're taking to mitigate that.

Okay. So in all of these things that we do, you go into them very confident and that is just the operating parameter. You're not going to undertake it if you lack confidence that it's going to work or that you're going to be successful. That's for sure. Having said that, you're always also continuously planning and looking at scenarios should you have challenges in a certain area, what are my workarounds? What are the engineering solutions? What are my operational solutions? What would we need to do? And I think what is going to keep us moving forward is the fact that we've been able to quickly organize into teams or into a very focused technical groups that allow us to find and resolve the issues and root causes during the process. So we need to maintain the discipline of having quick reaction to anything that comes up. We need to maintain the anticipation or contingency in the event that something comes up. We need to continue to plan and then we need to continue to optimize our day-to-day operations. So it's a -- there's a number of different things on a day-to-day basis that challenge you in this sort of operation, primarily just around procedures and parameters and really focusing on those sort of operations are going to be necessary for us to do that. I can't guarantee that there won't be more things. And I'm being very optimistic. I'm just saying that's the reality. What I can guarantee is that we're going to get after it, and we're going to do what we need to do following the disciplines that I just laid out in order to make sure that we resolve anything in a quick manner or as quick as possible.

There's some questions regarding the mitigation effort and whether or not there's going to need to be more investment in machinery or technology to kind of control those impurities moving forward.

That we need to study if there's going to be further investments. I will say that for sure, from an ongoing perspective, there's always going to be some, we would call, maintenance capital that's required for us to upgrade equipment, to modify equipment. And those sort of things are already baked into our forecast when we look at capital needs.

There are some other questions regarding specification. Are we working towards meeting the original specification? Or are we setting a new specification moving forward that we'll replace it.

We will have both. At the end of the day, we have a road map and that road map actually took us beyond the original specification. So we will put the new specification in which, again, as I said, is in line with what the market requirement is and what the competitive specification is. And then we will move towards our original specification because we're only modifying that one constituent. And then beyond that, we will move towards continuous improvement as our road map is going to take us down beyond what the current best-in-class is for a competitive alternative.

There are questions related to the quality of the product now being produced. Can you elaborate on what that quality is. Previously, the company has mentioned semiconductor-grade quality and has that been attained? And if so, will the company serve the semiconductor market from Moses Lake at any time in the future?

Okay. So we have not qualified our current product in semiconductor applications yet. So I don't know that necessarily I can say we are at the level where our material can be used in semiconductor. What I did say is that we have an ambition to produce a product that is usable in the semiconductor applications. If you look at one of the original developers of FBR production, it was a company known as MEMC and MEMC used it specifically in their semiconductor wafers. So at some technology node, it could be used. It may not be the most advanced, but that's not our priority. Right now, our priority is to be able to produce a product that is going to be acceptable for our customers' future requirements as well. And then it's also going to allow us to look at other opportunities. But we're very focused on, first and foremost, getting the plant, running in a position where we're fully stable and where we're optimized and maximized with regards to product and at a quality that's consistent within control limits so that our customer is going to be in a better place; our investors, our shareholders are going to be in a better place; and we're going to be in a better place when it comes to that.

There's some questions regarding pricing with the change in specification. Was there a change in the product price with this change in specification?

Our original guidance with regards to the range that we gave is still in place for EBITDA.

There's also some questions regarding the level of purity and why it's so high for PV-grade polysilicon?

I'll say this that it is absolutely not so high. As I explained before, our plant was designed to supply older technology targets in terms of crystallization and efficiencies. But multicrystalline is dead. There's virtually nothing in there. So for us to restart, we had to produce product that was not only good for today's technology but have the capability to continually improve to keep up with the near-future technologies. This has been our focus. So we don't believe that the specification is too high for PV. And if you look at what's out there, and particularly in a time like now, right now, with the oversupply in China, you find is there's a flight to quality. And if you really want to make your company more robust and resilient in the face of oversupply and having the best product possible is what's going to get you more longevity because there's always a flight to quality in those particular cases. Because for us, it's having a product that is being able to be used in today's technology as well as tomorrow's technology. It's about differentiation, and it's about longevity, not just about supplying over the next 2 years.

There's also some questions about the capacity that we're running at today at the facility.

We are still in the process of ramping up. As I'd stated before, we have one silane unit online, we have another silane unit that's ready to come online when it's going to be needed. We have run through a number of our different FBR reactors and are running some now and others are in standby, ready to be run. And our handling systems are all either have been online or in fact maybe in the process of turnarounds and retrofits, but those have all been gone through as well as all of our packaging systems. So for us, we're going to take a gradual ramp. That's going to balance basically rates and value creation with purity and that's the most important thing. For us to make more product that's going to be sold at a lower value or to some other area, it doesn't make sense for us. So it's a matter of balancing the rates and ramp with our purity targets.

There's also some questions regarding our customers' qualification process and what would be needed for that.

Yes. These are common tests that are used to evaluate how the material performs for its intended use. So that's not -- there's a number of different things that customers do, most often pulling crystals, analyzing material. These are fairly standard.

There's a number of questions that are -- don't pertain to the press release and others that I think have kind of already been addressed. The other one and maybe you touched on this, but there's multiple questions related to the specific purity that has been attained and Moses Lake now is 12N, 9N, if you could expand on that.

Yes. Like I think I've said this before when it comes to people using Ns. I think it's a nice short hand, but it's not really a true indicator of what your material is. So I would say this that when you look at Ns, what really matters is what are you analyzing for? For the more things you analyze for, theoretically, you could have less Ns than somebody who only analyzes for a couple of things and then claims it's 12Ns because it's just a subtraction issue. So I think rather than focusing on the Ns, what we prefer to do is, focus on what our impurity levels are and how those are. And what I would say is, if you look at the market standard that's out there, with regards to granular, you could see that our specification is, for the most part, aligned. It's better in some areas. And in some areas, we still need to work -- we need to work harder on. But it's still within our contractual obligation. So I think that's what's really important is will we make a product that can be used as intended and that can be used by our customer, and that's to satisfy what our contractual obligations are. Is that more than 9Ns? For sure. That's that. Is that 12Ns? Given everything that we evaluate, not so much.

So I guess in regard to the question specific to this release, you've addressed and touched on all of those. The other questions, those can just be submitted through the regular Investor Relations submission on the website. So yes, I think that's.

Okay. Well, thank you very much. I know it's your evening over there. We appreciate your interest, your questions and more to follow. Have a nice evening.