Suntech Power Holdings Co., Ltd. (NYSE: STP), the world's largest producer of solar panels, today announced financial results for its second fiscal quarter ended June 30, 2011.
Highlights
"In a competitive market environment, our core operations performed well as customers continued to demonstrate their preference for Suntech's superior quality and highly bankable solar products," said Dr. Shi, Suntech's chairman and CEO. "With 48% shipment growth year-over-year, we achieved our shipment guidance and continued to improve our position in the Americas and emerging solar markets. Our pipeline to supply bankable utility-scale solar projects continued to build during the quarter, most notably with our 190MW partnership with Solarhybrid in Europe, and a recently-inked 200MW agreement for multiple projects in North America. We are also gaining traction in China's utility solar market, which has been stimulated by the introduction of a national feed-in-tariff."
"Operationally, we implemented a number of initiatives to improve our supply flexibility and lower our cost structure. Specifically, we discontinued a long term agreement with MEMC and expanded internal wafer capacity to 1.2GW. We also continued to drive solar innovation with the launch of two new high performance product lines that we are shipping in large-scale today."
"Looking forward, we anticipate the highly competitive market environment to continue for the next few quarters. Nonetheless, we are confident that with our ongoing investment in expanding our channels, and the strength of our global solar brand, track record and highly bankable offering, we are well positioned to maintain our industry leadership," added Dr. Shi.
Second Quarter 2011 Results
Net Revenues
Total net revenues for the second quarter of 2011 were $830.7 million, compared to $877.0 million in the first quarter of 2011 and $625.1 million in the second quarter of 2010. The sequential decline of revenues was primarily due to a decline in the average selling price of PV products, which was partially offset by an increase in shipments.
Gross Profit
For the second quarter of 2011, gross profit was $33.7 million and gross margin was 4.1% compared to $182.7 million and 20.8%, respectively, in the first quarter of 2011; and $123.3 million and 19.7%, respectively, in the second quarter of 2010. The sequential decrease in gross profit was primarily due to a $91.9 million write-off of the unamortized cost of warrants previously issued to MEMC in conjunction with a supply agreement, which was recently terminated. Excluding the impact of the MEMC warrants, non-GAAP gross profit was $125.6 million and non-GAAP gross margin was 15.1%.
In order to facilitate comparison between Suntech and its peers, as of the second quarter of 2011, Suntech has reclassified freight expense as an operating expense. Previously, freight expense was a component of cost of revenues. In the second quarter of 2011, freight expense was $16.7 million. Comparable numbers in historical periods have also been adjusted accordingly.
Operating Expenses
Operating expenses for the second quarter of 2011 increased to $204.0 million, which represented 24.6% of revenues, compared to $85.8 million, or 9.8% of revenues, in the first quarter of 2011, and $142.3 million, or 22.8% of revenues, in the second quarter of 2010. The sequential increase in operating expenses was primarily due to $120.0 million of expenses related to the recent termination of a wafer supply agreement with MEMC. The year ago period was impacted by a write-off of thin film equipment and prepayments to Shunda Holdings.
Excluding the one-time charge related to MEMC, non-GAAP operating expenses were $84.0 million, or 10.1% of revenues, in the second quarter of 2011.
Operating Income and Margin
Loss from operations in the second quarter of 2011 was $170.3 million and operating margin was negative 20.5%; compared to income from operations of $96.9 million and operating margin of 11.1% in the first quarter of 2011; and loss from operations of $19.0 million and operating margin of negative 3.0% in the second quarter of 2010. Excluding the one-time charges related to MEMC, non-GAAP income from operations was $41.6 million and non-GAAP operating margin was 5.0% in the second quarter of 2011.
Interest Expense
Net interest expense was $32.5 million in the second quarter of 2011 compared to net interest expense of $30.3 million in the first quarter of 2011 and $22.6 million in the second quarter of 2010. Net interest expense in the second quarter of 2011 included $10.1 million in non-cash expenses of which $8.3 million was related to the outstanding convertible notes.
Foreign Exchange and Other Income
Foreign exchange gain was $11.7 million in the second quarter of 2011 compared to a foreign exchange gain of $29.9 million in the first quarter of 2011 and a loss of $61.4 million in the second quarter of 2010. The foreign exchange gain in the second quarter was primarily related to the appreciation of the Euro versus the US Dollar.
Net other expense was $41.4 million in the second quarter of 2011, compared with net other expense of $56.4 million in the first quarter of 2011 and net other income of $24.3 million in the second quarter of 2010. The net other expense in the second quarter of 2011 was mainly due to mark-to-market losses from foreign exchange hedging activities. The net impact of losses related to hedging and foreign exchange fluctuations was approximately $29.7 million in the second quarter of 2011.
Equity in Earnings of Affiliates
Equity in earnings of affiliates in the second quarter of 2011 was $4.0 million, compared to equity in earnings of affiliates of $0.4 million in the first quarter of 2011 and losses of $100.6 million in the second quarter of 2010, which was primarily due to the impairment of equity investment in Shunda Holdings.
Discontinuation of CSG Solar
In the second quarter of 2011, Suntech discontinued operations of its subsidiary, CSG Solar AG, in Germany. Suntech incurred a $13.8 million one-time charge related to the discontinuation in the second quarter of 2011.
Net Income and Earnings per ADS
Net loss attributable to holders of ordinary shares was $259.5 million, or $1.44 per diluted ADS, for the second quarter of 2011, compared to net income of $31.9 million, or $0.17 per diluted ADS, for the first quarter of 2011 and a net loss of $174.9 million, or $0.97 per diluted ADS, for the second quarter of 2010. Non-GAAP net loss in the second quarter of 2011 was $33.8 million, or $0.19 per diluted ADS.
Balance Sheet
Cash and cash equivalents totaled $648.2 million as of June 30, 2011, compared with $782.6 million as of March 31, 2011. The primary uses of cash in the second quarter of 2011 were capital expenditures and working capital.
Inventory was $571.4 million as of June 30, 2011, compared with $550.2 million as of March 31, 2011.
Accounts receivable totaled $862.7 million as of June 30, 2011, compared with $715.6 million as of March 31, 2011. The increase in accounts receivable was primarily related to accounts with two large project customers as well as the majority of sales occurring in the month of June.
Short-term borrowings were $1,665.7 million as of June 30, 2011, compared with $1,626.6 million as of March 31, 2011.
Cash Flow
In the second quarter of 2011, cash provided by operations was $1.9 million, compared to cash used in operations of $140.2 million in the first quarter of 2011, and $14.3 million in the second quarter of 2010.
Non-Cash Items
In the second quarter of 2011, the major non-cash related expenses were share-based compensation charges of $3.4 million; depreciation and amortization expenses of $31.6 million; $10.1 million of non-cash interest expenses, as mentioned above; an inventory provision of $29.5 million; $91.9 million related to the MEMC warrants; and $13.8 million loss related to the discontinuation of CSG Solar.
Capital Expenditures and Amortization
In the second quarter of 2011, capital expenditures totaled $119.9 million, compared to $128.5 million in the first quarter of 2011 and $92.6 million in the second quarter of 2010. Capital expenditures in the second quarter of 2011 were primary related to the expansion of wafer manufacturing facilities.
Business Outlook
In the third quarter of 2011, Suntech expects PV shipments to increase by over 15% compared with the second quarter of 2011. Suntech expects gross margin will be in the range of 11% to 13% in the third quarter of 2011.
Suntech expects to incur losses related to hedging and foreign exchange of approximately $30 million in the third quarter of 2011. Guidance is based on an assumed exchange rate of $1.44 USD to the Euro.
For the fiscal year ending December 31, 2011, Suntech expects to ship at least 2.2GW of solar products and generate revenues of $3.2 billion to $3.4 billion, subject to changes in foreign exchange rates. Excluding the $91.9 million impact of the MEMC warrants, non-GAAP gross margin for the full year 2011 is expected to be range of 13% to 15% (2)
Suntech plans to expand wafer capacity to 1.6GW by the end of 2011. As a result, full year 2011 capital expenditures are expected to be in the range of $340 million to $360 million. Suntech will maintain its cell and module production capacity at 2.4GW.
Additionally, a live and archived webcast of this conference call will be available on the Investors section of Suntech's website at //ir.suntech-power.com.