REC Silicon ASA

Good morning and welcome to the second quarter of 2023 earnings release of REC Silicon. My name is Kurt Lovins and I'm the CEO. I would like to, before we get going, I'd like to remind everybody that if you have questions, please feel free to feed them in and we will answer the questions at the end of the presentation. In the second quarter, our revenues were up 26% versus the previous quarter, primarily driven by increased silicon gas sales and some higher semi-grade polysilicon prices due to mixed effects. This also resulted in a positive contribution from our semiconductor segment, again, driven by the volumes. as well as seasonal lower energy costs. The semiconductor market during Q2 appeared to be stabilizing, and even though it's at a lower level, there's still a lot of visibility in terms of the orders flow. PV poly itself remains weak and is also, to some degree, stabilizing. We signed loan agreements totaling $140 million during the quarter for the purposes of repayment of the bond and Moses Lake Restart and Butte investments. Looking forward, I think from highlight of this quarter is that we expect that the FBR offtake agreement will be completed within the next month. And we are continuing discussions with silicon anode material producers as well as potential channel partners. And our Moses Lake restart is on track. And currently the target is November 1st for startup. Our revenues were 36.7. Our EBITDA was negative 8.5. Primarily impacted by the restart activities out of our Moses Lake activity and restart. as well as the positive EBITDA from our semiconductor materials segment. In our semiconductor materials segment, as noted before, we had an increase in our revenues versus the previous quarter. Our polysilicon sales volume was relatively flat. However, our polysilicon sales price increased over 60%. Again, this is due relative to the mixed effects. Silicon gases increased over 32%. However, due to mixed effects, there was a price decrease overall. Cash flows were 34.1% decrease, ending at 15 million as of June 30th. This was primarily affected by negative EBITDA, interest payments, and cash outflows from our capital expenditures. Nominal debt, 213 million. Nominal net debt, 198 million. In our semiconductor segment, silicon gases, we shipped 849 metric tons total. You can see that this, in fact, was the highest total since last year, Q2, before we entered into the period of softness. This is primarily due to the fact that inventories are beginning to be taken out of the system and there was some restocking. In addition to that, we have been enacting a strategy of moving into markets which have less barriers to entry, so to speak, where we can move our material into them during periods of weakness of our primary semiconductor market. So that has been allowing us to capture some volume, albeit some of those segments have lower ASPs. appears in the semiconductor market that, according to industry participants, both our distributors and end users, as well as third-party economists and others that follow it, that we are at or near a stabilized bottom for now. And we see that in terms of what we expect with regards to orders kind of going forward and orders that we were able to achieve in this quarter. So it's not necessarily a positive indication that we expect it to turn up. However, by all indications, it looks as if we've reached a stable situation. For the advanced gases that we have that go into advanced logic devices and memory devices, there's there's entered into a kind of a new regime of inventory drawdown. We are seeing some decreased orders, and we expect those to remain through 2023. However, as I stated in the last quarter, it's still the same fundamental issue that we don't really, our opportunity hasn't changed. Our gases are still being used in advanced technology nodes. There's more fabrication facilities coming online and being invested in right now. None of those have been backed off. So as we move through this period, we are using it to, as I had stated previously, to invest and finish our investments in things such as our DCS capacity, which will be coming online in Q3, and we expect to begin qualifications on this year. so that we're ready when the market bounces back. In polysilicon, again, we had a situation where, yes, we did increase over Q1. However, the price increase was primarily driven by base effects. CZ polysilicon demand is soft. We have noted that not just the demand for our materials, however, we have noted that from other wafer manufacturers as well in terms of their ordering patterns right now, which is aligned with the fact that silicon wafer demand in the semiconductor industry is relatively muted right now. MC polysilicon, on the other hand, is stable. We have a lot of visibility in terms of demand for that going out multiple quarters. The challenge in polysilicon, as noted before, is that we need to find ways to mitigate effects of this regional electricity shortage or imbalance. Right now, we are balancing production with periodic electricity costs, trying to utilize more favorable periods. In addition, we have increased prices further from where they were before, and those will be going into place over the next few quarters. In addition to that, we hedged a portion of our electricity demand in order to shield us from some level of seasonality that we expect to see going forward over the next six months or so. In addition to that, we continue to evaluate midterm solutions to this issue. And everything as of now is still on the table, from how we are going to procure electricity to what products we may stay in due to their sensitivity to electricity in the midterm. In addition, we are still evaluating longer-term solutions as well, those beyond three years. In the PV polysilicon market, as many of you probably noted, there was some significant weakness in the Chinese market. It has stabilized now, and we see where it is in some cases, we see some transactions that are up slightly. And the outside of China polysilicon price has also come down. However, it is still trading at a premium to the Chinese inside of China price. And for those who recall, how our MOU was set up. In fact, there is some benefit for us due to the fact that we are outside of China, and it is expected that that market will remain a bifurcated market from the Chinese market going forward. There are a lot of new plant expansions in China. We'll have to see. Some of them have already started to... temporarily shut down. Some have been starting to be deferred. And again, we'll continue to monitor those and see what the effects are. And companies in the United States continue to make announcements on new module and cell expansions, which will be good for our business, both from polysilicon and or silane. The Moses Lake restart is currently one of our, if not our, top priority. Right now, our modified FBR reactors are ready for startup. We have done a successful FBR reactor inert trial run. So we are ready to, once we begin to flow chemical, to begin the process of starting up. Our silane unit modifications are to be mechanically complete in September. We've completed all mechanical integrity inspections on them for the silane 3.0 unit. We have ongoing work on our product handling systems to be done in October, and we've already started testing and recommissioning of some of our equipment in sections that are already have been through the process, isolated and getting them ready for startup. Our activity continues in line with the plan and we fully expect to have our full complement sufficient for us to operate the startup of the plant. 86% of our project budget has been spent or is currently under contract. So the amount of unknown unknowns is much less as we move towards the completion of this project. So updates on our foundational activity, as we call it. In terms of contracts, as I noted in the intro, our FPR polysilicon offtake agreement with Hanwha is expected to be completed within the next month. Both parties are under final internal reviews. We continue supply discussions with the silicon anode producers as well as with Hanwha Corp and other channel partners. From a financing perspective, we have not only did we sign $140 million, but subsequent to that, we signed another $100 million three-year term loan that we finalized in July. And we're currently working on the final transfer of our financing, which is $40 million, and we expect that to be in place by the end of Q3. Moses Lake. As noted before, we'll start up on November 1st. Also, as I hit upon somewhat, we are continuing to evaluate the butyl electricity situation in our product portfolio. As I noted before, we will be finished with that, at least with the midterm part of that evaluation here within the next few months. DCS expansion is mechanically complete and starting up this month, and we already have targets and customers that are online for qualifications. The ULIN-JV share sale process continues to be extended. That has been affected primarily by our partner, and they are at this point driving that. However, it is ongoing, and We continue to agree to have the extensions going on as the process is going on. The CHIPS Act is now evaluating funding that's available for suppliers of materials, key materials to the semiconductor industry. They announced a program of a certain level and now have said that they will be back out by the beginning of next year with a program for smaller investments as well. We'll be following that as there may be some opportunities for us to share in that particular program as well. So in summary, well, unfortunately, we're still overall negative EBITDA. our underlying performance was in line with the muted semiconductor market and the challenging regional electricity short market. We were able to secure the necessary financing for the Moses Lake restart and butte upgrades. We are close within the next month and in the process of final internal review, OF THE OFF TAKE CONTRACT AND THAT'S EXPECTED TO BE COMPLETED IN THE NEXT MONTH. AND MOSES LAKE DATE FOR RESTART IS NOVEMBER 1ST. SO THAT IS ALL THAT WE HAVE TO PRESENT. THANK YOU VERY MUCH AND WE'LL SEE YOU IN NOVEMBER. OR PRIOR TO THAT, I BELIEVE WE WILL BE PARTICIPATING IN SOME events in which we would be presenting RAC silicon at some investor events. So I open it up for questions.

Okay, so moving on to the submitted questions, some of these you touched on and discussed during your presentation, but I'll run through these. Can you elaborate further on how the sale of the U.N. JV is progressing?

Yeah, I mean, you know, the fact is is that we have offered our shares as part of that process, and we are, in this particular case, moving in this process with our JV partner. So as I explained, they continue to voluntarily extend the process so they can continue discussions, and that's where we are at.