REC Silicon ASA (RECSI) Earnings Call Transcript & Summary

Good morning and welcome to the REC Silicon First Quarter 2025 presentation. I'm Kurt Levens, CEO of REC Silicon. Today, we're going to talk about some highlights and updates both from Q1 and then subsequent events, our normal financial review. We'll touch on strategic direction issues based upon activities as we described during the last quarterly presentation, as well as a trade policy update given all of the activity that has been over the past 2 months; and then provide with a summary. So our major restructuring activities have been accomplished and ongoing -- or a number of other restructuring activities. This will be a process that we will be continuing throughout the remainder of the year. We had an EBITDA loss of $4.6 million from continuing operations. Hanwha and its affiliates launched a voluntary share purchase offer. We are still working on further financing options for restructuring, and we have a little more discussion about those on a couple of slides. We'll say that right now it is a very challenging environment for sales revenues, a result of a number of issues coming together, trade actions, both new and existing; channel inventories in some segments that are a little bit weaker or where there's imbalances between the demand in the regions; and market softness, with regards to the pull on the demand end. All continue to impact our sales revenues and therefore our cash flow. So even though North America and Korea were our largest regions in this past quarter, they definitely remained weaker than previous high run rates due to specific semi segments and channel inventory for some high-margin gases and OLED producers. Still Southeast Asia and China shipments remain limited. And if some of you recall: China shipments, for us, for silane was something that we were able to take advantage of, given our brand and quality, when we had capacity that was available in terms of our module fleet. That is much more limited now as a result of trade actions, and we can talk about that later. There was a slight increase in total sales volume, as you know. However, mix effect was not as favorable. Our SG&A is coming down. However, we are going to continue to reduce and optimize what we can so that, as we exit the year, we should be at a -- our target is to be at an even lower number than what we run now, plus, minus. Again, the primary challenge with our Butte operations are sales related. Our revenue and EBITDA were affected by product mix, driven by a 12% decrease in our higher-margin gases versus Q4 shipments. In terms of tariff mitigation, we have a significant portion of our key input materials fixed already, and in fact, some were already on hand before the tariff -- the latest tariff rounds had started. What that means is that we feel, for direct input materials, that we should be less exposed this year. However, there are still some unknown on indirect impacts due to our suppliers. And various equipment and other materials as well are still unknown at this point, but we think that the effects will not be as great as they would have been had it been affecting our raw materials. I want to note that we expect that our CapEx peaked in Q1 as we finished out projects. And the remainder of that is due to maintenance capital and projects that we're finishing up in our Butte operations. Our interest paid will represent an ongoing challenge until we have fully bottomed on restructuring costs and our Butte revenue profile gets back on track. We will need additional financing during this period. As previously announced, we received a $40 million loan from Hanwha international in the quarter. The current effort is to extend the Standard Chartered $50 million loan that matures in June for another year. We are currently exploring the sale of property adjacent to our facilities as well in order to help with our long-term financing efforts. Q1 revealed a number of project delays in all of our targeted markets, particularly in April and in the United States as well. In some cases, we're tracking delays of at least a year. The reshoring play is an important part of our strategy. We will continue to monitor and meet with stakeholders and be flexible and reactive and in some cases anticipate as needed. Reasons cited for these delays include construction, technology challenges or change in technology, policy uncertainty and trade actions. The adjustments we have made and are making are much more austere than the 2019 time period and have cut across many more functions within the company. We are very focused on our -- putting the company in a position where we can be sustainable. We have provided some targets. And we will endeavor to improve and refine as much as possible on the Moses Lake target and SG&A target so we exit the year closer to a terminal run rate while in this mode. For revenues, we are targeting 580 metric tons of gas sales. Given recent events and associated uncertainty, we do not want to guide beyond the quarter. However, discussions and public statements from various companies indicate that a better second half may be possible, pending resolution of the current trade and market overhangs. On this slide, there's excerpts from the release. We encourage everyone to please read the release, this is a very thorough and detailed document, in order to get information regarding the voluntary cash offer. I want to note that this is a -- it is a structured process that follows regulatory steps and guidelines. And our function is to make sure that we are there to support the Board and any other entity in terms of from a logistics standpoint of providing the information that's required. Yes, tariffs have affected us, both the existing tariffs as well as the new "liberation day" tariffs. They did result in some order cancellations and pushouts. However, we've been working on mitigating those. Fortunately, they are not affecting us in our top 2 largest silane-consuming countries. However, China, as I had indicated, is very limited at this time. Right now the biggest impact seems to be a lack of clarity from our customers' and end users' standpoint, with potential for further slowing of some projects and decision-making and, hopefully, some acceleration of other projects. So in summary. We will continue to move quickly and aggressively to get us to a steady state on Moses Lake and support costs for our current envisioned operating mode. We are strengthening our sales efforts to anticipate and move quickly in this market in order to defend share where necessary and increase it in our targeted areas. Our strategy remains the right one and the opportunity is still visible. However, the time span uncertainty and ongoing funding need make for a more difficult and risky approach. We are still working on available avenues to finance and we will continue to do that, and as we have more information, we will release it. Thank you. And we'll take some questions.

Okay, getting into the questions submitted. Can you get into more detail on the silane sales to the silicon anode market? In the presentation, it stated that there have been delays, but it also makes it sound like that, second half of the year, there will be some increased sales.

Yes. I mean right now, from silicon anode manufacturers, it's across the board. It goes from those that are projecting delays, those that now we know are being delayed because we should have been supplying them by now, to those that have also -- recently a smaller one who closed down their facility here in Moses Lake. So it's kind of a mixture. And we are hopeful, based upon discussions, that we will start supplying in the second half of the year.

I guess, to kind of go along with that, can you go into more detail on what discussions or offtake agreements REC may have with anode customers such as G14 or Sila nano technology?

Well, yes. I mean, Sila, we had disclosed before that we have a contract with them. And we are, again, hoping to begin shipments to them in this year, in the second half. G14, again, we would like to supply beyond, we do supply their facility. They're a smaller facility now. We would like to be able to supply them more here when their facility starts up. So obviously any discussions we have that are ongoing, I don't want to comment on, other than to say, from our perspective, we would like to be able to supply as many silicon anode producers as we can.

Okay, there's several questions related to the cash offer. How is it possible that -- to recommend a cash offer of NOK 2.2 when you -- the CEO has previously stated that the value of REC Silicon is USD 3 billion?

Okay. I did not state that the value of REC Silicon was USD 3 billion. What I stated, and I ended up reiterating it again, was the replacement value of the assets at that time, which was more than a year ago now, were $3 billion. Replacement value is for a brand-new state-of-the-art facility with the same capacity and the same assets. That is a different thing than market value. And it's a different thing, in any case, from market value now, so I think that that's best left to some analysts as well as third parties who can make a determination of what a fair value is for REC. I think I still want to reiterate that as a company we have significant funding issue for operations and we need to resolve that issue. And all of those sort of things, I think, go into, when someone -- when a third party will value the company, how they value it.

Okay. I guess, to kind of go along with that answer: Is the cash offer of NOK 2.2 a premium over the latest stock prices, or is it a reflection of the total value of the company?

I can't answer that. I can say, if you go back to the release, in the release, there's some language around that which discusses what the premium was over trading. And the Board approved recommending the offer based also upon a fairness opinion. And I'm sure there will be other analysts who look at it as well.

And the recommendation has been for shareholders to accept the offer of NOK 2.2. What alternatives have you considered to optimize shareholder value? And how do these compare with Hanwha's offer?

Again, the Board looked at the offer and decided to -- based upon input from third parties, to recommend the voluntary share offer to the shareholders.

Okay. What is the plan for all the non-silane-related equipment in Moses Lake?

Right now all of that equipment has been treated as discontinued operations. It is sitting idle.

Has the company received any external values -- valuations for the Butte and Moses Lake plants individually?

No, we have not.

Has a rights issue been considered? There are many shareholders who would consider this.

At this point -- again, the Board and unconflicted Board members have recommended to the shareholders this particular share -- voluntary share offering.

There's quite a few questions here that's related to the share offer. Let me -- has REC Silicon or the Board reached out to the anode battery producers to suggest the sale of the Moses Lake plant to them?

I can say that REC Silicon has not reached out. However, I would like to point out again, even when it comes down to other alternatives, there's nothing that precludes people from pursuing that course of action. If that's something that they wish, they know how to get ahold of us or the Board in order to discuss.

What is the detailed plan for Moses Lake? [ Would it be ] a sale of Moses Lake, a partnership with someone or restarting operations?

Yes. Right now, the current strategy that we have is to restart silane operations after business warrants it because of silicon anode or other consuming segments in this area would require it.

Could the new tariffs affect Qcells' decision to source polysilicon from Southeast Asia and to then look domestically for polysilicon, for example, Moses Lake?

I have no idea what Qcells would think. And on top of that, I would like to point out that the reason that we ended up disengaging and discontinuing our granular polysilicon in Moses Lake was because the material itself was not adequate and did not meet the specification, as I said. And any further modifications required had a level of uncertainty that did not make it tenable for us to move forward. That hasn't changed, so -- but I don't know what Qcells is thinking or not thinking.

With the proposed delisting from the Oslo Exchange, is REC considering listing in the United States?

I have no idea what -- if this proposed delisting goes through, what then -- and the shareholder is going to do. So I have no idea.

[ I think you've ] addressed a similar question, but in order to increase value for the shareholders, what other alternatives or other parties have you pursued?

Well, as I had stated before, regarding alternatives, we have not pursued carving up the company or selling out parts or parcels. Having said that, there is nothing to -- that precludes interested individuals, companies from approaching us or approaching the Board or making other offers.

Can you disclose who the third parties were that recommended the offer to the Board?

Yes. I believe that we said that there was a fairness opinion that was provided by Arctic.

Will this year's AGM be a physical meeting, or virtual?

The plan right now is for it to be a virtual meeting.

There's numerous questions on this share offering, but I think you essentially addressed, yes, the different types of questions that are coming in, so there's no other questions, I think, that need to be addressed.

Okay. Okay, well, thank you for attending. And when there is more information, we will make sure that we pass it on. And I would encourage everybody again to read the release on the share offer. And look forward for the further information as it comes out from the other shareholders. Thank you.