MEMC Electronic Materials, Inc. (NYSE: WFR)shares jumped when the company reported preliminary financial results for the fourth quarter and year ended December 31, 2005.
Summary of the 2005 fourth quarter results:
* Net sales of $317.3 million, an increase of 18.2% for Q4 from last year
* Gross Margin of 40.2%; operating expenses declined
* Cash of $153.6 million after debt pay-down of over $80 million
Commenting on the company’s performance, Nabeel Gareeb, MEMC’s Chief Executive Officer, said: “As expected, the stronger pricing environment has materialized and contributed to good incremental margins. Unit demand for the semiconductor and solar industries continued to show strong growth, and there are no short-term indications of a slow down. In addition, our profit generation enabled us to pay off a large amount of debt and have a significant net cash (cash less debt) position.”
Net sales of $317.3 million for the fourth quarter of 2005 represent an increase of 18.2% from the fourth quarter 2004 level of $268.4 million. Fourth quarter gross margin was $127.7 million, or 40.2% of sales. Operating expenses of $31.9 million declined as a percentage of sales to 10.0% from 11.0% of sales in the year-ago quarter. This resulted in operating income of $95.8 million, or 30.2% of sales, compared to $69.6 million, or 25.9% of sales, in the 2004 fourth quarter.
The combination of income taxes and favorable tax adjustments provided a net benefit of $66.3 million, or $0.29 per share, for the full year 2005, and $23.5 million, or $0.10 per share, for the first nine months.
Approximately $12.5 million of the revenue increase and $12.5 million of the profit increase for the 2005 fourth quarter was due to the effect of the previously disclosed deferred revenue and profits related to polysilicon shipments in prior quarters. This brings the company’s deferred revenue balance down to less than $1 million, and the company does not expect any additional deferred revenue to be recorded in 2006 or going forward.
On a non-GAAP basis, excluding the benefit of the $12.5 million of deferred revenue and profits, net sales would have been $304.8 million, gross margin 37.8% of sales and operating income 27.3% of sales.
Operating cash flow for the quarter was $109.1 million, or 34.4% of sales. Capital expenditures for the quarter totaled $21.2 million. Free cash flow (operating cash flow minus capital expenditures) was $87.9 million or 27.7% of sales. The company used this free cash to pay down over $80 million in debt during the quarter.
2005 Results
“We are pleased with the improvement in our results in 2005,” commented Gareeb. “We saw strong revenue growth, margin expansion, and even faster EPS growth, all in a year that had extremely soft demand dynamics in the first half.”
“Net sales and gross margin grew to record levels, and our full year incremental margin (the increase in 2005 gross margin dollars over 2004 gross margin dollars divided by the increase in 2005 net sales over 2004 net sales) was 41%. We finished the year with debt lower by over $100 million and net cash of $113.7 million.”
“While we continued to build upon our financial success, we were keenly focused on improving our positioning in all aspects of the business in 2005. In the third quarter, we began 300mm production in Taiwan, reinforcing our global positioning and expanding our presence in this strategic and fast- growing region. We made investments to grow and enhance our polysilicon and Silicon-On-Insulator capabilities. We also took several steps to protect our intellectual property portfolio, particularly with respect to PerfectSilicon(TM), and the fast growing markets that it serves. As we begin the new year, we are as excited as ever about our prospects for the future, and expect that our hard work in 2005 will yield even better results in 2006 and beyond.”
“Finally, we are proud to have received third party recognition, including being added to the S&P MidCap 400 index, being named to BusinessWeek’s Info Tech Top 100 List, and more recently, to Forbes’s list of Best Big Companies.”
For the year ended December 31, 2005, the company’s net sales increased by 9.4% to $1,124.7 million, compared to $1,028.0 million in 2004. Gross margin increased to $409.0 million, or 36.4% of net sales in 2005, compared to $369.4 million, or 35.9% of net sales in 2004. Operating income was $285.2 million, or 25.4% of sales, compared to $260.5 million, or 25.3% of sales in 2004.
The company reported net income of $338.2 million, or $1.49 per diluted share, for the year ended December 31, 2005, compared to net income of $226.2 million, or $1.02 per diluted share, in 2004. Additionally, MEMC generated operating cash flow of $303.4 million in 2005, or 27.0% of sales, and free cash flow of $144.3 million or 12.8% of sales. This enabled the company to reduce debt by over $100 million, including the benefit of currency changes. Capital expenditures in 2005 totaled $159.1 million, or 14.1% of net sales, compared to $149.8 million in 2004.
Outlook
“Based on the strength of the pricing environment and the indicated demand from our semiconductor and solar customers, we are targeting first quarter 2006 sales to be between $315 and $320 million, gross margin close to 40%, and operating expenses to be between $30 and $31 million. Compared to our non- GAAP results for the 2005 fourth quarter (reported results minus $12.5 million of deferred revenue and profits) of $304.8 million of sales and gross margin of 37.8%, this would represent a 3%-5% increase in revenue, and approximately 200 basis point increase in margin.”
“Assuming that this environment continues, and the anticipated solar market opportunities materialize as expected, we are targeting revenues to be between $1.3 billion and $1.5 billion, and non-GAAP EPS (based on a cash tax rate in the mid-teens) to be between $1.40 and $1.70 for the 2006 fiscal year,” continued Gareeb.
“Although MEMC has been quietly working on expanding its polysilicon capacity, we are now formally announcing that we are targeting our polysilicon capacity to grow from approximately 4,000 metric tons per year to approximately 8,000 metric tons per year over the next three years, as dictated by market conditions. The majority of this capacity will be usable for both semiconductor and solar wafer production and is anticipated to be accomplished within the constraints of our business model. This will provide us with significant opportunities to take advantage of a vertically integrated supply chain as compared to our competition, by providing security of supply for semiconductor wafer expansions and significantly increasing our penetration of the solar market. This polysilicon capacity expansion coupled with the opportunities available in the semiconductor and solar wafer industries would support an approximate doubling of our first quarter 2006 revenue run rate by the end of the decade, if market conditions allow,” concluded Gareeb.
Conference Call
MEMC will host a conference call today, January 26, 2006, at 5:30 p.m. ET to discuss the company’s preliminary fourth quarter results and related business matters. A live webcast will be available on the company’s web site at www.memc.com. Please go to the web site at least fifteen minutes prior to the call to register, download and install any necessary audio software.
A replay of the conference call will be available from 7:30 p.m. ET on January 26, 2006, until 11:59 p.m. ET on February 2, 2006. To access the replay, please dial (402) 220-4329 at any time during that period. A replay will also be available until 11:59 pm ET on February 5, 2006 on the company’s web site.
About MEMC
MEMC is the world’s largest public company solely devoted to the supply of wafers to semiconductor device manufacturers. MEMC has been a pioneer in the design and development of wafer technologies over the past four decades. With R&D and manufacturing facilities in the U.S., Europe and Asia, MEMC enables the next generation of high performance semiconductor devices.
Loading...