REC Silicon ASA

Welcome to REC Silicon's fourth quarter 2024 earnings call. My name is Curt Levins and I am REC Silicon's CEO. I am joined today by Jack Jung, REC Silicon's CFO. Today we will report on REC Silicon's fourth quarter 2024 earnings call. NOW TURNING TO THE AGENDA FOR TODAY'S CALL, FIRST, WE WILL TALK THROUGH A FEW HIGHLIGHTS FROM THE FOURTH QUARTER. WE'LL THEN DISCUSS OUR NEAR-TERM STRATEGIC PLANS AS WE ENTER 2025, AND FINALLY WE WILL SUMMARIZE OUR DISCUSSION POINTS AND HAVE Q&A. SUPPORTS AN OVERVIEW OF SOME HIGHLIGHTS AND UPDATES FROM THE FOURTH QUARTER. During the fourth quarter, revenues from continuing operations totaled $29.7 million, driven by an increase in silicon gas sales and planned sales of polysilicon inventory. EBITDA loss from continuing operations was $5.3 million, primarily affected by the shutdown of our facilities. As you know, during the fourth quarter, we made the decision to discontinue the production of polysilicon at our Moses Lake facility. Following that decision, we successfully secured financing to support the business through this process and transition period. We would like to review the factors that led up to and contributed to our decision to cease polysilicon production in Moses Lake. As previously communicated, We struggled with post-reaction processing and handling equipment systems and appurtenances that were contributing impurities and undesirable qualities into our material or not performing as efficient as desired. We worked with our customer to provide a product of a modified quality levels that would allow us to begin shipping if successfully qualified. In the meantime, we worked at implementing the last of our initially identified solutions on one line and ran the bypass line with further modifications with the intent of improving the product quality and consistency further. We had some improvements and also suffered some failures with system robustness and product consistency with the various solutions. We received notification of an unsuccessful qualification test. We attempted to modify the specification again and gain another qualification test. While open to this, the customer reasonably wanted our material to be within the specifications and target and within a timeframe that was reasonable and at the volumes that we were contracted to deliver. We also continued to operate the lines and implement other ideas to improve the product consistency, equipment reliability and robustness. And we did so up until the day the decision was made. We considered alternative commercial arrangements such as discounts, other markets or customers in light of a historically low price PV polysilicon market. We also contemplated the economics and effects of reduced rate operating. Ultimately, the decision came down to our uncertainty and risk factors around the timing of when we could make the necessary product quality, the quantifiable success of further identified modifications fixes in terms of quality, yield, production rate. There was no silver bullet. the unknown cost of some of the potential modifications and fixes. At this point, we were nine to 10 months late for our first delivery and operating with a high ratio of fixed costs, the plan. We made the decision to shut down the facility to stabilize the company and maintain optionality for future decisions and opportunities. I would like to express my gratitude and respect for the team across RAC Silicon for all their hard work, tenacity, ingenuity during a very challenging process. Now I'll provide an update on what we achieved in the rest of our business during that time. In our Silicon gas business, we shipped 543 metric tons in the fourth quarter, an increase of 5% over the previous quarter. The memory device market is a driver for semiconductor silane demand and standard memory utilization remains soft. Demand for PV and FPD affected our silane demand as well as we face lower utilization rates in China and Southeast Asia. Our DCS and MCS volumes grew 48% and 37% respectively over Q3. We remain confident in our leading market share and capability to serve our customers in this market in order to maintain a strong and stable business in this area. Turning to our polysilicon business in Butte. After shutting down polysilicon in mid-year, we are in the process of clearing inventory and selling material from test reactors. We sold 216 metric tons in Q4, doubling our shipments over the last quarter. While softened demand impacted shipments at the end of 2024, we aim to clear our residual finished goods inventory by mid 2025. Next, I'll review our financial performance in more detail. We generated revenues of $29.7 million during the quarter, all from our Butte operations. As noted, EBITDA was a negative $5.3 million. And we had a net expense of $7.9 million reflective of Inc. costs. In Butte, we generated revenues of $29.6 million during the quarter. As polysilicon sales volume was lower than planned and silicon gas sales price was lower than expected. However, silicon gas sales volume was up, as noted before, over 5% over the previous quarter. EBITDA was an increase of 2.2 million over Q3. And Q3 had maintenance turnaround costs contained. In January, we secured a $40 million loan from Hanwha to finance our restructuring activities. Our existing 50 million bridge loans from Hanwha were rolled into this financing with a maturity of January, 2026. We are continuing to search for and evaluate opportunities to strengthen our balance sheet and liquidity position. And these efforts will ultimately support our strategic goals moving forward. So RAC has entered into a period of transition. As we navigate this phase of the business, our management team and board have aligned on an operating plan driven by the key priorities. which will be our focus over the coming months. We believe focusing on these priorities in the immediate term will put the company on a path towards sustainable growth over the long term. First and foremost, we need all of our attention at this time on stabilizing the business and continuing the very difficult work of restructuring and doing so as quickly as possible. We are committed to aggressively cutting costs and streamlining our remaining operations. This includes reductions in fixed overheads, SG&A, cost avoidance, and deferral opportunities, minimization of capex to maintenance level, and completion of select cost reduction reliability projects. This also includes a review and minimization of third party resources and costs and consolidation of ancillary support facilities. Our aim is to bring the cost of optionality and business functions in line with the underlying business as quickly as possible. This will help to support our bottom line and aid in our journey towards long-term growth. We will be focused on margin expansion and volume growth to drive our utilization efficiencies in Butte. However, this won't be the last time I say it, but our number one priority right now is on stabilization of our business as quickly as possible. While we are focused on Immediate and short-term activities we are transitioning to a pure plate silicon gases producer Which historically has better margin opportunity and less price volatility over shorter periods than polysilicon We will focus on where we are differentiated due to quality performance location or cost The priority asset wise is is to drive greater utilization of our Butte facility. We want to, again, highlight the various applications of our silicon gases and point out one that is poised for tremendous growth. And that is for use as a silicon source for active anode material. The primary use of our silicon gases is in chemical vapor deposition as a silicon source in various thin films. The applications themselves are driven at the macro level by global trends, digitalization, electrification, energy applications, AI, the Internet of Things, and data. However, we are also looking to utilize our geographic position to grow from the reshoring of manufacturing capacity in the semiconductor and PV industry. The figures on this slide are illustrative of how much our core and targeted markets are growing. The U.S. semiconductor market is expected to double its production capacity by 2032, much of it in advanced technology that preferentially uses silicon gas products such as MCS and DCS, as well as silane. Solar PV cell production is expected to grow by as much as 15 times its current size, and potentially much larger if the upside plan scenario is taken into account. Together, these investments and trends create opportunity for the silicon gases market, and by extension of our focus and location, opportunities for RAC silicons. Turning to the next slide. The market for silicon containing anodes also shows potential for rapid growth as illustrated by these benchmark research figures. And commensurate with that, a large scale demand for sideline. While there is still a wide range of potential demand and utilization scenarios that are investment and process dependent, We have seen some that put the derived potential silane demand in North America in the thousands of metric tons. While our first priority is fully utilizing our butte production asset, the silane production facility in Moses Lake is being maintained in a safe and recoverable mode. This provides RAC Silicon with access to additional capacity and positions the company to capitalize on these opportunities as demand for silicon anode grows. Even though we are very focused on stabilizing the business in the short term, we will remain flexible with our production to capitalize on this demand in order to drive sustainable long-term growth. I want to briefly summarize our near-term focus for this business. As stated, The number one thing is the number one thing. We will continue to focus on stabilization of the company. In the near term, we will reduce costs and seek to streamline our operations. We know that collectively maintaining this focus will position us on the path to stabilization and ultimately being able to realize our ambition for long-term sustainable development. Thank you for your attendance. We now have some time for Q&A.

Okay. Turning to questions that have been submitted. There's a few questions surrounding the silicon anodes. And previously we've been more specific in that we've stated that we're in talks with numerous potential customers and there's nothing in here specific with these Customers, can you expand or elaborate on how any contracts are going?

Yes, what I can say is that we are still in discussions with multiple customers over the supply of silane for active anode material. While we didn't put it in this particular presentation, that was because we were trying to address overall the opportunity itself. On a tactical level, we are specifically engaged, as I had stated before, with at least six different companies in terms of discussing opportunities of various degrees and timing.

Is there any kind of timeline that you can give for Moses Lake reopening as a silicon gas producer?

At this time, it's still in process. We've just launched this transition and restructuring. And in all cases, it will be highly dependent upon how quickly those different scenarios for silicon anode evolve.

After terminating that in your agreement with QCELS, do you know what Hanwha's intention is with REC Silicon and its ownership stake?

No. That is a shareholder issue, and we have no idea what Hanwha is thinking with their ownership stake and position.

Now, are you able to give specific steps REC Silicon will take to meet its loan obligations in the next couple of years?

Specifically, we are approaching further financing options at this time. We are, in addition to that, evaluating disposal of underutilized assets. In addition to that, we are also reducing our costs and focusing on our business on higher margin so that the operation itself will move towards generating more cash.

To go along with that, does REC silicon have any plans for an equity issue?

Currently, we are still just evaluating what our options are and there's no specific path at this time.

Can you provide specific guidance on what REC silicon's targets are for cash flow or cost reductions or revenue in the next two years?

We understand that this is something that would be of use for our investors and shareholders, particularly as we transition to an operation that is fully going, unlike when we were in a position with starting up of the Moses Lake facility and there was a lot of unknowns. We are not ready to do that at this time, but we are working on different ways that we can communicate to our investors and shareholders what our particular metrics or measurable information may be. As soon as we have that done, we will be doing that.

is RSC consider selling Moses Lake or parts of Moses Lake?

RSC considers the Moses Lake silane production a valuable asset. Having said that, the whole purpose or one of the main purposes of our making the decision we made at the end of the year so that we can maintain optionality. Optionality, obviously, to grow the business, but optionality has many forms. So I think that that's not something that's on the table right now. But of course, that is always a board and shareholder decision. If that is something that makes sense later on, we have not precluded anything, but it certainly is not our

Okay, kind of shifting now, you had covered it, but going back to the test material and qualifications, and why did REC Silicon not attempt to have tests done outside of China?

The test itself was a function that was our customer's call. in terms of where qualification was. And as I'd stated before in the Q&A, when you go to that, you'll see that there was limited opportunities outside of China, limited experience with our particular type of material outside of China. And as to the availability of that at that time, I cannot, and the arrangements that our customer made at that time, I cannot speak to. However, I don't believe that inside of China or outside of China really mattered when it came to the qualification. What mattered is the competence of the testing company or the operating company.

How confident are you that REC Silicon the silicon gas business can be a standalone business for REC silicon?

Well, sometimes I'm told that I'm too confident. Other times I've been told that I'm not confident enough. So what I can say is this. When we look at the history of that business, historically for the company, and for REC, and we look at the amount of contribution that our gas businesses had towards our overall business, one would see that it has been a significant contributor towards our performance and results for a long period of time. I would come at it from the position of this, that if we continue to focus on it, grow, focus on higher margin material, focus on where we have a differentiated offering, then we have a greater chance of long-term sustainable growth than if we were not involved in that business and just focused on other materials.

Are you able to disclose how much polysilicon, how many metric tons of polysilicon is still remaining to be sold from the Butte facility

At this time, I am not able to say how much is remaining from the Butte facility. However, what we have is mainly products that are not of the highest quality. And when we look at it in relation to what we had before, it has been greatly reduced. from where it was, and we still have an ambition of clearing it all by the middle of the year.

Can you provide any more information on the details of the contract with Thule Nanotechnologies?

As we had stated before, when asked this question, we have an agreement in place with SELA Nano. And we also have confidentiality provisions between them and us. And what we can say is that we are planning on making deliveries beginning in the second half of this year. That material will come from our butte location as we had indicated previously.

You had touched on a question concerning if there was any sale of Moses Lake assets of the plant in mind. There's another question now. Would REC Silicon consider selling the Butte plant? And if so, what would the value be?

I can't speak to the value of the Butte plant. What I can say is that, again, it is not management's recommendation that we sell the Butte plant at this time, given that it is a key part of our transition and our stabilization of the company. Again, having said that, sales of that sort of magnitude are decisions that the board and shareholders make. And of course, that was the whole point of maintaining optionality was the fact that we would be around to make decisions that are in the company's best interests at the time that we need to make them.

See, we've got a number of questions and many of them are are similar in nature, so OK. There's a question here did concerning the. The agreement with with QCELS did REC terminate the agreement or Or was it a joint agreement to terminate that?

Yes, we came to a mutual agreement and agreed upon what the conditions were under which we would terminate the contract. As evidenced by the fact that we both signed and agreed to it.

What type of collateral are there on the loans that we currently have that RAC Silicon currently has?

It's collateral of the assets of RAC Silicon, which includes real property, shares in RAC Silicon, Inc.,

Do you have a timeline when EBITDA will be sufficient to cover the interest payments that REC has with its debt?

As I said that we have obviously for some initial planning figures, we have made some assumptions around that. However, the first thing we need to do is get a better idea of what our stranded costs are going to be. When we went to gear up for a very large production facility like this, there's a lot of different contracts that were in place and different arrangements that are in place for periods of times that we need to unwind or aggressively reduce or come up with alternative solutions. In addition to that, there's a cost that we have for optionality, obviously. So until we get through this initial restructuring period, we will not have a firm timeline on when that will be, because it's going to be highly dependent upon how successful we are in terms of executing on this restructuring the final shutdown on reductions in forces on the stranded cost reductions and optimization of our operations and ancillary support functions.

Do you plan to do any future presentations live in person in Oslo?

I stated last year, I believe, that I would like to come and do that. We had every intention to do so. However, the fact is we have been in a very difficult position for the past six to eight months, and one which required a certain amount of presence. due to decisions that needed to be made and due to staying close to as close as we could to an unfolding and a fluid situation. So at some point, yes, I would like to come and do a presentation in Oslo or come and have, be able to, speak at a conference or other venue where we can talk more about what our transformation and what our story is. However, first and foremost, we need to keep our first things first, which is to make sure that we're focused on reducing our costs, right-sizing our operations, right-sizing how we are going to be geared towards these different markets and gaining stability as a company.

It looks like you've answered the The questions that have come in, like I said, there's a number of questions. Many of them are similar in nature.

Okay. Okay. Well, we would like to thank you for your attendance. And as we have more information to pass on, we will make sure that we do so. Thank you.