Evergreen Solar, Inc. (Nasdaq: ESLR) has announced financial results for the quarter ended July 1, 2006.
Second-Quarter 2006 Financial Results
Net loss attributable to common stockholders for the second quarter of 2006 was $7.5 million, or $0.11 per share. This figure includes approximately $1.7 million of Evergreen Solar’s share of net losses associated with the production ramp-up at EverQ and compares with a net loss of $4.5 million, or $0.07 per share, for the second quarter of 2005 and a net loss of $8.1 million, or $0.13 per share, for the first quarter of 2006. Evergreen Solar recorded equity-based compensation expenses of approximately $1.8 million during the second quarter of 2006.
Second-quarter 2006 product gross margin was positive 4.1 percent, compared with positive 6.2 percent for the second quarter a year ago and negative 12.5 percent for the first quarter of 2006. The expected year-over-year decrease in product gross margin primarily resulted from (i) negative gross margin recorded by EverQ associated with incremental manufacturing start-up costs, (ii) incremental costs associated with completing the conversion to thin-wafer production in Marlboro and (iii) increased stock-based compensation expense related to Evergreen Solar’s equity compensation plans incurred as a result of the adoption of new financial reporting standards. The 16.6 percentage point improvement in gross margin from the first quarter of 2006 was largely the result of the incremental $10.7 million of revenue generated from product manufactured by EverQ.
“Evergreen Solar continues to move forward on its vision – to rapidly advance photovoltaic technology and ultimately achieve economic parity with retail electricity,” said Richard M. Feldt, President and CEO. “Our polysilicon supply chain is stronger than ever before and the production ramp at EverQ is on track. In addition, Evergreen Solar’s R&D initiatives are progressing well. Our Marlboro factory is running 100 percent on thin wafer, setting the stage to begin conversion of EverQ’s factory to thin wafer during the third quarter. Our Quad Ribbon platform – Evergreen Solar’s next-generation technology – has successfully grown thousands of String Ribbon wafers in pilot production. Solar product demand continues to strengthen, and our deal with SunEdison, LLC raised the total value of Evergreen Solar’s current sales contracts to more than $600 million over the next five years.”
Business Outlook and Guidance
In conjunction with the binding memorandum of understanding for EverQ, enabling EverQ to expand its capacity from 30MW in 2006 to approximately 300MW in late 2009 or early 2010, Q-Cells and REC will become equal partners with Evergreen Solar in EverQ. As a result, all three partners will share equally in the net income generated by the joint venture. In addition, Evergreen Solar anticipates receiving royalty payments from the Company’s thin ribbon technology, which it expects to license to EverQ. Evergreen Solar expects to account for its share of EverQ’s financial results under the equity method of accounting subsequent to the execution of the definitive agreements for the EverQ expansion, expected during the third quarter.
There are no changes anticipated in the current distribution arrangements under which Evergreen Solar purchases all solar modules manufactured by EverQ. Evergreen Solar continues to expect its reported revenue to increase throughout the year, more than doubling from 2005 levels for full-year 2006 as EverQ ramps production. The Company expects revenue generated from product purchased from EverQ to be between $16 to $22 million and between $23 to $25 million for the third and fourth quarters of 2006, respectively. Evergreen Solar expects quarterly revenue from product manufactured at its Marlboro factory to continue in the $10 to $12 million range for the balance of 2006. This revenue guidance is based upon current foreign exchange rates and the sale of all of EverQ’s production output.
Evergreen Solar continues to expect EverQ’s gross margin to be in a range of 12 to 25 percent in the third quarter of 2006 and to rise to a range of 30 to 35 percent by the fourth quarter of 2006. Gross margin at Evergreen Solar’s Marlboro facility is expected to be between 7 to 15 percent for the foreseeable future, as ongoing implementation of new technology initiatives in Marlboro will continue to affect gross margins.
Evergreen Solar expects its combined gross margin to be between 10 to 15 percent for the fourth quarter of 2006 — the first full quarter during which results will be reported under the equity method of accounting.
The Company’s combined fourth quarter gross margin represents approximately one-third of EverQ’s gross margin, plus 100 percent of the gross margin generated by its Marlboro factory. Gross margin guidance excludes the impact of any costs associated with planned start-up expenses for the new 50MW EverQ facility, which have yet to be fully estimated.
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