ECD sees revenue growth, reduced costs in Uni-Solar business, but falls short of profitability

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Flexible thin-film solar provider Energy Conversion Devices reported higher revenues and improved gross margins for the second fiscal quarter of 2011, although the company again fell short of profitability. ECD is guiding lower third-quarter revenues, but expects sales to grow sharply in the final quarter of the fiscal year.  

ECD saw its total consolidated revenue for the quarter hit $69.5 million, an increase of 31% over the second fiscal quarter of 2010 and 2% over the previous quarter. Solar product and system sales of $66.5 million accounted for most of the company’s revenues, representing an increase of 44% over the second fiscal quarter of 2010 and 2% over the previous quarter.

The company’s quarterly net loss of $7.6 million was an improvement over both the year-ago and previous quarters. ECD experienced a net loss of $39.3 million in Q2 FY2010 and a net loss of $13.5 million in Q1 FY2011.

Quarterly earnings before interest, taxes, depreciation and amortization and excluding restructuring and stock expense were back in the black at $4.4 million, compared to about zero in the prior quarter and ($20.4 million) in the year-ago quarter.

The consolidated gross margin grew to 21% compared to (15%) in the previous-year quarter and 18% in Q1 FY2011.

During the quarter, ECD said it shipped 28MW of its Uni-Solar brand silicon thin-film PV products and produced 33MW, compared with 30.5MW and 33.6MW, respectively, in the first quarter.

The company continued to reduce its manufacturing cost per watt, pushing the metric down from $1.61 in Q1 to $1.45 in the recently completed quarter. ECD is holding to its goal of reaching $1.15/W cost in calendar 2011.

The company also provided guidance for the first-half and full-year FY2011 periods. For the third quarter, ECD sees both shipments and production in the 27-33MW range, with shipments jumping up in Q4 to 33-38MW and production remaining relatively stable at 30-33MW.

ECD expects Q3 revenues to decrease slightly from Q2 to $55 million-$65 million, but to rebound strongly in Q4 to $115 million-$130 million. Gross margins should range between 19 and 22% for the next quarter, then shrink to 12-15% for the fourth quarter, according to the company.

For the full FY2011, ECD forecasts 120-130MW in shipments, production in the 125-130MW range, and revenues reaching somewhere between $310 million and $335 million.           

Mark Morelli, president/CEO of ECD, made the following statement in conjunction with the quarterly earnings announcement.

“ECD generated meaningfully positive EBITDARS for the first time in four quarters, which is an effective measure of the company's progress on our path to profitability. We demonstrated significant improvement in reducing our cost structure during the second quarter. Gross margin increased to 21% and operating expenses declined significantly.

“We are achieving the milestones in our technology roadmap laid out last year. First, we are on track to begin production this summer of our new PowerBond product with our next-generation High Frequency technology and 10% aperture-area conversion efficiency. At full production, we expect to manufacture this technology at a cost of approximately $1.15 per watt.

“In addition, we recently announced NREL confirmation of our Nano-Crystalline technology with an initial conversion efficiency of 12% in a large-area encapsulated cell, a world record for thin-film silicon.

“Both of these technological advancements will enable us to deliver our flexible, lightweight PV products at lower prices, thereby positioning us amongst the best-in-class on the cost of solar energy.”

“North America is rapidly growing as a large core market for us. For example, last quarter we sold 5.4MW to Constellation Energy for a large rooftop project in New Jersey, further demonstrating our traction with large-scale projects in the United States.

“Our guidance for the third quarter reflects a decrease in revenue but an increase in shipments compared to the second fiscal quarter. Specifically, we expect an increase in the relative amount of system shipments in the coming quarters. Due to the timing of project construction, revenue from system shipments is not recognized contemporaneously. Thus, the revenue for the system shipments in the third quarter will be recognized over subsequent quarters.

“Additionally, our fourth-quarter guidance anticipates projects that include sourced products not included in our shipment guidance. Our fourth-quarter revenue guidance and our increased full fiscal year revenue guidance reflect the shift in our business mix from product sales to system sales.

“As we continue to implement our technology roadmap and execute on our path to profitability, I am confident that we are doing the right things to continue moving the company forward,” Morelli concluded.

In a note commenting on the ECD results, Barclays Capital was bearish on the company’s near-term prospects. “We do not see any clear path to profitability in the near/medium term, even if the company is able to hit cost/efficiency targets. High exposure to the Italian market makes the earnings outlook even more difficult, in our view.”

“FQ2 revenue of ~$70 million was below our previous estimate of $75 million and the Street estimate of $74 million,” the note continued. “Gross margin of 21.4% was above our estimate of 18.9% and the Street estimate of 19.2%.”

Barclays believes a trio of key risks portends near-term headwinds for ECD: softening demand from key South European markets, high operating expenses that make breakeven levels higher than current capacity, and low margins on the systems business that could offset any reduction in panel production costs.

On the positive side, reduced panel costs, the company’s technology roadmap, and traction in the growing U.S. market are mentioned.

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