REC Silicon ASA

Good morning and welcome to RAC Silicon's third quarter presentation. Today I'm joined by Kurt Levens in Butte, Montana. Kurt Levens is responsible for our semiconductor business. And here in Moses Lake, I'm joined by James May, the CFO, and I'm also in Mosul Lake, Thor Torvind, and I'm the CEO of the company. Can we move to the third quarter highlights? Revenue came up 0.7 million higher in the last quarter. That's a very encouraging number. because the fact is that we were able to ship less silicon gas in this quarter, but we were able to have higher prices on what we ship. Unfortunately, we were hit by high power prices. We have had high power prices also in the US during third quarter. So the higher our prices together with planned maintenance turnaround, which took a little bit longer and cost a little bit more and anticipated as then reduced our EBITDA to negative 3.7. The cash balance increased by 2.7 during the period. And we are very pleased that we were able to settle the last legacy issue from the REC silicon wafer bankruptcy back in 2012, to settle it with Nordea, which was then communicated yesterday. In the Butte facility, we continue to see a large opportunity for future growth. So we have decided to expand the distribution capacity of Xylon. Kurt will come back to it. And we also will improve our float zone for the silicon product by doing some investments in our reactors. These are very good investments. And we'll then have a relatively short payback. Silicon gas sales. came back or came in at 7.28, which was lower than expected. This is mainly due to the fact that we have had large problems with the logistics over the Pacific. We are not the only one, but that's the reason why we didn't meet our goal on the silicon gas side. On the other hand, it is very encouraging that the price increased by some 7.6% compared to last quarter. When it comes to semiconductor segment, we also see a price increase, which is mainly due to the fact to the mix, but we also see on the polysilicon side, a stronger prices going forward. When it comes to Moses Lake, we have continued to discuss with the battery or silicon and battery companies to make a contract with them. When it comes to making a non-Chinese low carbon EV value chain, it is a lot of interest. And we are gradually processing or progressing within this. In this area. So then I will hand over. To games made to explain in more detail. The financial results.

Good morning story indicated I will be reviewing the company's financial performance for the third quarter. Third quarter revenues came in at $36.2 million, which represents an increase of approximately 2% compared to the prior quarter. This increase can primarily be attributed to higher average sales prices, which were mostly offset by lower volumes. We're reporting an EBITDA loss for the third quarter of $3.7 million compared to income of $7.9 million for the second quarter. Recall that EBITDA during the second quarter included other income of $8.3 million related to the forgiveness of loans guaranteed by the U.S. government under the CARES Act. Excluding this item, EBITDA decreased by $3.3 million compared to the prior quarter. This decrease can primarily be attributed to lower EBITDA contribution in the semiconductor materials segment. We'll discuss that a little bit more on the next slide. Note that all revenues reported by the company for the third quarter are in the semiconductor material segment. Total polysilicon sales were 397 metric tons for the third quarter, or about 69 metric tons lower than the prior quarter. However, as Tor indicated or called out, the second quarter included a one-time sale due to spot market opportunities of approximately 165 metric tons. So our underlying base shipments have increased nicely compared to the prior quarter. Total average polysilicon prices realized during the third quarter increased by some 20%, primarily due to the change in mix caused by the large spot market sale during the second quarter, while prices for each individual grade of semiconductor polysilicon remained fairly stable. However, we did see sharp increases in prices for solar-grade polysilicon, which increased the average sales prices realized for this polysilicon by almost 70% compared to the prior quarter. Silicon gas sales volumes decreased from 819 metric tons in the prior quarter to 728 metric tons in this quarter due to the continuing challenges associated with the disruption in the global supply chain. I'm certain that Kurt will provide additional information with respect to our markets for the semiconductor segment. EBITDA contributed by the semiconductor materials segment was $1.8 million for the third quarter, compared to $11.5 million for the second quarter. Again, recall that the second quarter included the forgiveness of the CARES Act loans, which contributed $4.5 million to EBITDA in the semiconductor materials segment. Excluding this item, EBITDA for the third quarter decreased by $5.2 million compared to the prior quarter. As you can see in the lower left-hand side of this slide, this decrease can be attributed to higher electricity prices, which accounted for about $2.9 million of the change, and then about $2.3 million due to lower production utilization caused by the completion of planned maintenance. During the third quarter, the solar material segment contributed a loss of $2.3 million to EBITDA. This is comparable to results reported for prior periods when non-recurring items are excluded. In other, the net cost was $3.3 million compared to net costs of $4.8 million for the prior period. This decrease can primarily be attributed to a reduction in accruals for estimated expenses associated with employee incentive plans. Cash balances at the end of the quarter increased by $2.7 million. Cash inflows from operations were $3.8 million, which were primarily a result of an $8.3 million decrease in the working capital invested. This consisted primarily of a $6.8 million decrease in inventories and also included $1.8 million decrease in trade payables, while accounts payable decreased by about $200,000. In addition, Our prepaid account balance has increased by $2.1 million due to payments, prepayments received from customers that we will convert into revenues during the fourth quarter. This demonstrates the increasing tightness in the markets for semiconductor-grade polysilicon, and we hope that we can see this trend continue into the future. These cash inflows were offset by outflows, which included EBITDA, the EBITDA loss of $3.7 million, interest payments of $2.2 million, which were associated strictly to payments on long-term leases, $300,000 of contributions to the defined contribution plan in the United States, and a currency loss of about $300,000. The remaining cash flows can be attributed to other changes in other assets and liabilities. Cash outflows from investing activities were $600,000 and consisted of $2.1 million in capital expenditures, which was offset by a $1.4 million maturity of municipal bonds held by the company. Cash outflows from financing activities were $500,000 and were a result of the long-term lease payments only. In total, cash balances increased by $2.7 million to $126.3 million on September 30th, 2021. Pleased to report that we've obtained a resolution to the company's one remaining legacy obligation. We agreed to a settlement with Nordea on October 18th that results in payments totaling 95 million kroner, which translates to a remaining liability of $10.8 million. The payment will be made in two parts. Approximately 32 million kroner will be paid from an existing escrow account held by REC Silicon at Nordea, which will result in a decrease in our restricted cash balances. And then the remaining 63 million dollars, or excuse me, 63 million kroner will be paid in cash prior to the end of February 2022. The settlement results in a decrease in the company's debt of approximately $12 million. In addition, because this was associated with the REC wafer bankruptcy in 2012, we've reported $13.4 million in profit from discontinued operations associated with this transaction. Nominal debt decreased by $12.9 million during the quarter to $198.5 million Again, this is due primarily to the settlement of the indemnification loans. In addition, the indemnification loans decreased by 500,000 during the quarter prior to settlement due to changes in currency rates and lease liabilities decreased by approximately 300,000. Nominal net debt decreased by 15.5 million to 72.3 million due to the increase in cash of 2.7 million plus the decrease in nominal debt of 12.9 million. I'll now turn the presentation over to Kurt to discuss developments in our semiconductor material segment. Thank you.

Good morning. I'm going to give it a little bit of color on both our electronic grade polysilicon as well as our silicon gas segments. So as it's been mentioned previously, in electronic grade polysilicon, We had a very strong quarter. Minus the Q2 one-off shipment that we had, you can see that our volumes grew and we expect this to continue on through Q4. Right now we have very good visibility on the commitments from the customers and that is in fact extending into 22 right now. We are involved in discussions with our customers And we have very high visibility on the level of commitments, as well as the longevity of those commitments. So right now, due to the strength in the market, customers are entering into much longer engagements than in previous past, as well as they feel much more comfortable due to the fact that they have more visibility on their order flow. We did, in fact, though, suffer some disruption due to global logistics. And this was mainly in the fact that we had even more opportunity to ship material to satisfy customer commitments that were interrupted and pushed into the next quarter as a result of the logistics problems. We don't know when they're going to resolve. It is not affecting our polysilicon business as much. but we still see some effects. And that's primarily because polysilicon is not a dangerous good, and the fact that it is quite often moved in ship line provided containers, not like where our gas is where it's moved in our containers. Next. In silicon gases, again, our underlying demand was very strong. We see right now, growing strength in the semiconductor industry. As everyone has probably heard, there is a shortage. However, the shortage just means that the existing fabs are able to run at much fuller capacity. Until new capacity starts coming online, we won't see another step change. But that is planned and in the forecast. With regards to how we ended up doing, our Incoming modules were severely hampered by the ongoing logistics issues. We are not able to fill modules and fill containers and turn them around until we receive them. Congestion both in China and overseas, as well as in the ports off of the U.S. coast, west coast, is causing the turnaround times on these assets to greatly extend. And this means that we have to then begin prioritizing and discussions with our customers about how we can meet their commitments. This has resulted in a lower volume in the third quarter. In the fourth quarter currently, based upon our commitments, we expect more. We have attenuated in there for some level of, I will just say, disruption based upon the past patterns of the past two quarters, we're starting to get some feel for the average times. However, I'll say that it is still to some degree very variable. And even though we have a lot of mitigating procedures in place, We certainly aren't suffering any issues over land freight and some of the other issues you hear because we have multiple sources and we manage that part very well. It's still, once it's on the ship lines, it's out of our hands. So underlying demand, as I said, in Q4 remains robust and underlying demand as we look out into 2022 is again expected to grow And we'll just continue to manage the situation. And as it then breaks, we expect that the amount of fulfillment that we're going to get and execution on our orders is going to be greater than what we're able to obtain right now. Next. So in light of these stronger marketplaces, in light of the forecasted demand and visibility that we're getting with customers. We made a decision to invest for our growth in order to maintain our global leadership position. What this entails is that in our silicon gases distribution capacity, we are going to invest in more containers as well as cylinders that allow us to support recently online and as well as future awarded business across the globe. We have over 20 separate sites that we've been awarded that we started to supply to in this year and that will continue on through the end of 2022 and beginning of 23. And we expect that there will be more. We need to be able to continue up that growth plane by supplying those sites. It also will give us some cushion against logistics shocks and transitions of customer locations. In some cases, we have customers who are going to multiple sites versus a single large mega site. And during that process, that means we need to employ more modules to be able to supply them. In addition to that, we're going to be supplying or we're going to be modifying and working on some of our reactors in order to make float zone that is able to support the electrification macro trend. This means that we're going to make larger rods, more mass float zone rods. In particular, this is an area where customers are currently forecasting a 9% to 10% compounded annual growth rate for the next few years. Both of these investments are high return investments with fairly quick paybacks. Thank you.