REC Silicon ASA

Good morning and welcome to this third quarter presentation for REC Silicon. I'm Tore Torlund, the CEO of REC Silicon. Today we would like to do it somewhat different. We are, let's say, in Moses Lake. So we will then use more people to present our numbers and our presentation today. uh james may will as usual take the financial review uh kurt levins who we are now in they say kurt levins is responsible for our butte operations and he is calling in from from butte francine vice president of commercial she is in houston and she will then present her part from from houston Chuck Sutton is our vice president of sales. And he will then present here for Moses Lake. And the same will Jeff Johnson, vice president of operations. And then we will invite you for Q&A when we have done our presentation. The third quarter highlights, definitely third quarter has been, let's say, eventful for REC Silicon. When we look to the revenues, they came in at $30.3 million. And as you will see, the EBITDA is very high this time, 17.9%. That is basically an accounting issue due to the fact that we were able to settle the property tax dispute here in Grant County in Moses Lake. The underlying EBITDA is $1.9 million. The cash balance increased from the last quarter by some $4.3 million. and it came up to 35.9 million. Cash inflow from operating activities was 3.6 million. Silicon gas sales came down from 8.31 in Q2 to 7.46. It's mainly due to the fact that we are in a difficult situation in China, but Kurt Levins will elaborate on this. Silent price increased by 3.4%. because basically China pays less than our customers outside of China. Semiconductor-grade polysilicon sales at 174, and we also saw an increase in price of some 9% versus what we had in Q2. And then finally, the Norwegian Central Tax Office dropped this tax issue we have had since, or which has been around since 2013. So they dropped the case, which then resulted in the reversal of 22.5 in tax liability. and 4.7 in interest liability. And it increased the shareholder equity by some 27.3 million. And at the same time, or also in third quarter, we were able to find an agreement with Grant County here in Moses Lake, and so we have now settled all the disputes we had for the year 2012 2013 2014 and 2015 so there is no more dispute on the property tax the settlement includes that we are going to pay the 3 million in december of this year And then every December for the next six years, there is a payment to be settled to be at 1.75 million. And that's the main reason why EBITDA went up to 17.9. There is a non-cash contribution to the EBITDA due to this settlement of some 16 million. Also, it has been a very eventful October. As you probably know, we have then entered into an agreement with Violet Power. Violet Power is a company which are going to build cells and module capacity here in Mosul Lake, just adjacent to our plant in Moses Lake. And we also have entered into an agreement with Group 14 Technologies concerning construction of a silicon anode battery pilot plant in Moses Lake. And at the end, the last one is that we were successful in a private placement of equity. It was completed on October 14. the settlement will occur in two tranches. One on the October 27th, where we received 302 million NOC. And in November, we then will receive another approximately 700 million, in total altogether, 1 billion NOC private placement. Then I will hand over to James May, but just give you a very short update on where we are compared to the previous quarter. The inventory of polysilicon went down by some 163 metric tons, so we sold more than what we made. The production was approximately at the level where we had indicated The semiconductor was, in fact, up 23.4, and I already commented on the silicon gas sales, which went down some 10% compared to prior quarter. So then, James, maybe you can give an update on the financial review.

Good morning. Total revenues for the quarter were $30.3 million, which is about $700,000 lower than revenues for the second quarter. All the revenues in this quarter were generated by the semiconductor material segment. The slight change in revenues can be attributed to lower silicon gas sales almost offset by higher polysilicon sales from the Butte facility. Provide a little more color around the effects of this in a few moments. Total EBITDA for the quarter increased substantially to $17.9 million, as Dora pointed out. However, EBITDA includes a non-cash adjustment for the settlement of the property tax dispute, which leaves about $1.9 million of clean EBITDA, which compares to $2.9 million of EBITDA for the prior quarter. This is the third straight quarter of positive EBITDA that the company has had since the second quarter of 2019. While we wish it was substantially higher, it does demonstrate how successful we've been in adapting to a very challenging business environment, and it places us in an excellent position to capitalize on the business opportunities in our future. You've heard a little bit about that, and we'll talk more about it in a few minutes. Within the semiconductor material segment, revenues for the third quarter, again, were $30.3 million and broadly unchanged from the second quarter. But as I noted, lower volumes of silicon gas sales mostly offset by an increase in total sales volumes of polysilicon. The total sales volumes of polysilicon within this segment were 401 metric tons compared to 323 in the prior quarter. Sales volumes of semiconductor grades, however, decreased by 14.5% to 174 metric tons. This decline can be attributed to the impact of COVID-19 and as large customers delayed purchases to control inventories on hand. The increase in revenues for polysilicon sales is a result of REC taking advantage of of spot market opportunities to sell lower quality solar grades of polysilicon, which resulted in sales of 227 metric tons or some 107 metric tons higher than the solar grade volumes in the second quarter. The high mix of solar grade sales had a dramatic impact on total average polysilicon prices realized, which decreased by 22.8% during the quarter. As Tor noted, however, semiconductor grade polysilicon sales prices increased by 9%. And this was in part due to the impact of tariffs imposed by China on sales prices for the highest quality float zone grades, which increased by 6.1%. And then in addition, average prices for semiconductor polysilicon increased due to a higher mix of FZ grade as a percentage of semiconductor polysilicon sold. Silicon gas sales volumes decreased by 10.2% as Tor reported out, mainly as a result of lower shipments into China, primarily for solar PV and older technology flat panel displays as China attempts to disengage from supply arrangements with the United States where possible. Outside of China, primarily in semiconductor, and high-end flat panel displays applications, shipment volumes remain strong due to improvements in technology and the commissioning of new capacity. As a result, average prices for silane gas increased by 3.4%. EBITDA contributed by the semiconductor material segment was 7.3 million, down from 9.4 million in the prior quarter, and this decrease can be attributed to the lower sales of silicon gases. There were no revenues within the solar material segment compared to 300,000 in the prior quarter. EBITDA contributed by the solar material segment was 14.6 million compared to 2.3 in the prior quarter. Again, EBITDA in this segment includes $16 million non-cash adjustment for property taxes, which leaves underlying EBITDA in the segment of 1.4 million. Net expense for the third quarter includes approximately an $800,000 year-to-date adjustment for lower accrued property tax expense in Moses Lake due to lower than expected property valuations. And this is not part of the settlement with Grant County. The clean EBITDA of approximately $2.2 million for the third quarter is comparable to EBITDA of $2.3 million for the prior quarter. Other eliminations were a net cost of $4 million and were broadly unchanged from the prior quarter. Cash balances increased by $4.3 million during the quarter. Cash inflows from operations were $3.6 million and included the EBITDA of $17.9, offset by the $16 million non-cash adjustment, a $3.3 million decrease in working capital invested, and the company paid interest of $1.4 million, which was all associated with long-term leases. In addition, we made contributions of 700,000 to the frozen defined benefit plan in the United States and experienced a $500,000 gain due to the impact of a weaker U.S. dollar on cash deposits in Norwegian kroner. Cash inflows from investing activities were $1 million, which was a result of the receipt of $1.3 million on the maturity of municipal bonds held by the company, and this was offset by capital expenditures of $300,000. Cash inflows from financing activities were $300,000 and were a result of the repayment of long-term lease liabilities. In total, cash balances increased by $4.3 million to 35.9 million on September 30th. Nominal debt increased by 11.1 million during the quarter to 221.5 million. This increase was due to the addition of a $9.9 million note associated with the settlement of the property tax dispute with Grant County. The note represents the present value of future cash payments from REC Silicon to Grant County to facilitate the settlement. That is $3 million in December of this year and six successive annual payments of $1.75 million beginning next December. We had a $700,000 increase in lease liabilities as well. The remaining 600,000 increase in nominal debt can be attributed to the impact of a weaker US dollar on the debt indemnification loan. Nominal net debt increased by 6.8 million to 185.6 million to the increase of 11.1 million in nominal debt that I just discussed, which was offset by the increase in 4.3 million in cash from the previous slide. As Tori indicated, we're pleased to report that the contingent liabilities faced by the company declined substantially during the quarter. First, we've already discussed the settlement of the property tax dispute. This settlement results in a net decrease in liabilities of $17.6 million. That's $27.5 million in the reversal of liabilities for taxes and interest, offset by $9.9 million in the note. that I just discussed. I would point out that the settlement is for all tax years rather than the $8.1 million for 2012 that we've highlighted on this slide during previous releases. Second, I'm more than delighted to report that the Norwegian tax offices dropped their examination of tax years 2009 through 2011. We've consistently reported we had a strong case and that we expected to prevail eventually. However, it took a little longer for the CTO to come to the identical conclusion. This transaction has resulted in a decrease in current liabilities of 27.3 million dollars and a substantial increase in the company's unrecognized deferred tax asset. With respect to the indemnity loan, the impact of a weaker US dollar increase, or it changed the balance by 600,000, and there were no other changes with respect to the status of the loan. I'll now yield the presentation to Kurt to discuss silicon gas and semiconductor grade markets.

Okay, Kurt. Kurt is in mute, so you have to give indication when we should then change the slides here.